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- Title
A simple model for study of the determination of the price level and the interaction of monetary and fiscal policy.
- Authors
Sims, Christopher A.
- Abstract
A representative-agent model with money holdings motivated by transactions costs, a fiscal authority that taxes and issues debt, no production, and a convenient functional form for agents' utility is presented. The model can be solved analytically, and illustrates the dependence of price determination on fiscal policy, the possibility of indeterminacy, even stochastic explosion, of the price level in the face of a monetary policy that holds M fixed, and the possibility of a unique, stable price level in the face of a monetary policy that simply pegs the nominal interest rate at an arbitrary level.
- Subjects
PRICES; FISCAL policy; PRICE levels; MONETARY policy; TRANSACTION costs; EXTERNALITIES; ECONOMIC policy
- Publication
Economic Theory, 1994, Vol 4, Issue 3, p381
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/BF01215378