ENGLISH

Optimal Monetary and Fiscal Policy with Limited Asset Market Participation

By Sven Jari Stehn

Book information

Publisher
International Monetary Fund
Year
2009
ISBN
9781451917130, 9781451872842
LCC
HC79.C6 -- S84 2009eb
Language
english
Format
EPUB
Filesize
1 MB (1478280 bytes)
Series
IMF Working Papers
Edition
1
Pages
36\0
Time added
2023-08-06 04:18:00
Consumption (Economics) -- Government policy. ; Fi

Description

This paper characterises the jointly optimal monetary and fiscal stabilisation policy in a new Keynesian model that allows for consumers who lacking access to asset markets consume their disposable income each period. With full asset market participation, the optimal policy relies entirely on the interest rate to stabilise cost-push shocks and government expenditure is not changed. When asset market participation is limited, there is a case for fiscal stabilisation policy. Active use of public spending raises aggregate welfare because it enables a more balanced distribution of the stabilisation burden across asset-holding and non-asset-holding consumers. The optimal response of government expenditure is sensitive to the financing scheme and whether the policymaker has access to a targeted transfer that can directly redistribute resources between consumers.

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