Economics, Econometrics and Finance
8 years ago

Fiscal policy shifts could lead to welfare gains for some consumers

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Journal of Macroeconomics
Inflation bias and markup shocks in a LAMP model with strategic interaction of monetary and fiscal policy
Alice Albonico, Lorenza Rossi

Paper Summary

Limited asset market participation affects optimal monetary and fiscal policies. In response to a markup shock, fiscal policy becomes more aggressive with more liquidity-constrained agents. Optimal discretionary policies lead to welfare losses for Ricardians but welfare gains for liquidity-constrained consumers.

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