Fiscal policy rules impact inflation and output persistence, shaping economic stability.
The article examines how different fiscal policy rules affect the economy's monetary situation. By using a New Keynesian model, the researchers studied the impact of debt and deficit measures on fiscal policy performance. They found that under discretionary monetary policy, the inflation bias is influenced by the fiscal policy regime. Implementing precommitment strategies increases output persistence compared to discretionary policies. The study also showed that with deficit rules, the tax rate's autocorrelation remains high regardless of the monetary or fiscal policy in place.