Econometrica Vol. 55 No. 6 1987
Time Consistency of Fiscal and Monetary Policy
open access
Abstract
This paper demonstrates how time consistency of the Ramsey policy–the optimal fiscal and monetary policy under commitment–can be achieved. Each government should leave its successor with a unique maturity structure for the nominal and indexed debt, such that the marginal benefit of a surprise inflation exactly balances the marginal cost. Unlike in earlier papers on the topic, the result holds for quite general Ramsey policies, including timevarying polices with positive inflation and positive nominal interest rates. We compare our results with
- DOI
- 10.2307/1913564
- Volume
- 55
- Issue
- 6
- Pages
- 1419
- Sources
- bibtex:phds-export.bib crossref openalex