The time consistency of monetary and fiscal policies

Are optimal monetary and fiscal policies time consistent in a monetary economy? Yes, but if and only if under commitment the Friedman rule of setting nominal interest rates to zero is optimal. This result is of applied interest because the Friedman rule is optimal for the standard preferences used in applied work, those consistent with the growth facts. (Replaced by Staff Report No: 305)

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Year of publication:	2002
Authors:	Alvarez, Fernando ; Kehoe, Patrick J. ; Neumeyer, Pablo
Institutions:	Federal Reserve Bank of Minneapolis
Subject:	Monetary policy \| Fiscal policy \| Interest rates

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Series:	Working Papers.
Type of publication:	Book / Working Paper
Notes:	Number 616
Source:	RePEc - Research Papers in Economics

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