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- Title
POLICY INTERACTION AND LEARNING EQUILIBRIA.
- Authors
Kudoh, Noritaka
- Abstract
This note studies fiscal–monetary policy interactions in an endogenous growth model with multiple assets. The “growth-rate Laffer curve” clarifies an important tension between economic growth and government revenue and reveals that higher economic growth does not always finance a larger budget deficit. There are two Pareto-ranked balanced-growth equilibria, which can both be E-stable. Although fiscal policy can eliminate the expectational indeterminacy, it rules out the equilibrium with a higher growth rate and higher welfare. Near the lower bound of the nominal interest rate, an arbitrarily small budget deficit will select the low-growth equilibrium to be the unique E-stable equilibrium.
- Subjects
FISCAL policy; MONETARY policy; ECONOMIC equilibrium; ENDOGENOUS growth (Economics); ECONOMIC development; ASSETS (Accounting); INTEREST rates
- Publication
Macroeconomic Dynamics, 2013, Vol 17, Issue 4, p920
- ISSN
1365-1005
- Publication type
Article
- DOI
10.1017/S1365100511000526