This paper extends a well-known macroeconomic stabilization game between monetary and fiscal authorities introduced by Dixit and Lambertini (American Economic Review, 93: 1522-1542) to multiplicative (policy) uncertainty.
We investigate the effect of fiscal policy on equilibrium determinacy in a New Keynesian economy with rule-of-thumb (liquidity constrained) consumers and capital accumulation by focusing on the inter-action between monetary policy and taxation under the assumption of balanced budget.
This paper extends the standard New Keynesian dynamic stochastic general equilibrium (DSGE) model to agents who cannot smooth consumption (i.e. spenders) and are affected by external consumption habits.
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