Debt Stabilization Bias and the Taylor Principle: Optimal Policy in a New Keynesian Model with Government Debt and Inflation Persistence.
Leith and Wren-Lewis (2007) have shown that government debt is returned to its pre-shock level in a New Keynesian model under optimal discretionary policy. This has two important implications for monetary and fiscal policy. First, in a high-debt economy, it may be optimal for discretionary monetary...
| Main Authors: | , |
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| Format: | Working paper |
| Language: | English |
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Centre for Applied Macroeconomic Analysis (Australian National University)
2007
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