Dynamics of monetary and fiscal policy interaction in New Keynesian model in continuous time

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Dynamics of monetary and fiscal policy interaction in New Keynesian model in continuous time. / Alexeeva, T. A.; Mokaev, T. N.; Polshchikova, I. A.

In: Differencialnie Uravnenia i Protsesy Upravlenia, No. 4, 2020, p. 88-114.

Research output: Contribution to journal › Article › peer-review

Author

Alexeeva, T. A. ; Mokaev, T. N. ; Polshchikova, I. A. / Dynamics of monetary and fiscal policy interaction in New Keynesian model in continuous time. In: Differencialnie Uravnenia i Protsesy Upravlenia. 2020 ; No. 4. pp. 88-114.

BibTeX

@article{30720bf6d97344e1afc20d28abcc1d5f,

title = "Dynamics of monetary and fiscal policy interaction in New Keynesian model in continuous time",

abstract = "The paper studies monetary and fiscal policy rules consistent with determinate equilibrium dynamics. We consider a three-dimensional New Keynesian model in continuous time with Rotemberg price-setting mechanism and non-Ricardian consumers, and study dynamics of the model under monetary and fiscal policies interactions. The key analytical finding is that the uniqueness of the equilibrium solution can be never achieved while both policies are in their active regimes. Another combinations of policies' regimes can lead to a local equilibrium determinacy through control of appropriate values of Taylor coeffcients (fMand fF). We demonstrate that in contrast to economy with Ricardian consumers, making government debt a net asset leads to creation of an additional channel for fiscal and monetary policy interaction and changing the conditions for local equilibrium determinacy. In addition, we show that in case of explosive equilibrium dynamics, limit cycle or more complicated attracting sets could appear, including chaotic attractors of various natures.",

keywords = "Chaos, Global indeterminacy, Hidden oscillation, Local equilibrium determinacy, New Keynesian model, Nonlinear dynamics, Scal and monetary policies' interaction, Taylor rule",

author = "Alexeeva, {T. A.} and Mokaev, {T. N.} and Polshchikova, {I. A.}",

year = "2020",

language = "English",

pages = "88--114",

journal = "ДИФФЕРЕНЦИАЛЬНЫЕ УРАВНЕНИЯ И ПРОЦЕССЫ УПРАВЛЕНИЯ",

issn = "1817-2172",

publisher = "Электронный журнал {"}Дифференциальные уравнения и процессы управления{"}",

number = "4",

}

RIS

TY - JOUR

T1 - Dynamics of monetary and fiscal policy interaction in New Keynesian model in continuous time

AU - Alexeeva, T. A.

AU - Mokaev, T. N.

AU - Polshchikova, I. A.

PY - 2020

Y1 - 2020

N2 - The paper studies monetary and fiscal policy rules consistent with determinate equilibrium dynamics. We consider a three-dimensional New Keynesian model in continuous time with Rotemberg price-setting mechanism and non-Ricardian consumers, and study dynamics of the model under monetary and fiscal policies interactions. The key analytical finding is that the uniqueness of the equilibrium solution can be never achieved while both policies are in their active regimes. Another combinations of policies' regimes can lead to a local equilibrium determinacy through control of appropriate values of Taylor coeffcients (fMand fF). We demonstrate that in contrast to economy with Ricardian consumers, making government debt a net asset leads to creation of an additional channel for fiscal and monetary policy interaction and changing the conditions for local equilibrium determinacy. In addition, we show that in case of explosive equilibrium dynamics, limit cycle or more complicated attracting sets could appear, including chaotic attractors of various natures.

AB - The paper studies monetary and fiscal policy rules consistent with determinate equilibrium dynamics. We consider a three-dimensional New Keynesian model in continuous time with Rotemberg price-setting mechanism and non-Ricardian consumers, and study dynamics of the model under monetary and fiscal policies interactions. The key analytical finding is that the uniqueness of the equilibrium solution can be never achieved while both policies are in their active regimes. Another combinations of policies' regimes can lead to a local equilibrium determinacy through control of appropriate values of Taylor coeffcients (fMand fF). We demonstrate that in contrast to economy with Ricardian consumers, making government debt a net asset leads to creation of an additional channel for fiscal and monetary policy interaction and changing the conditions for local equilibrium determinacy. In addition, we show that in case of explosive equilibrium dynamics, limit cycle or more complicated attracting sets could appear, including chaotic attractors of various natures.

KW - Chaos

KW - Global indeterminacy

KW - Hidden oscillation

KW - Local equilibrium determinacy

KW - New Keynesian model

KW - Nonlinear dynamics

KW - Scal and monetary policies' interaction

KW - Taylor rule

UR - http://www.scopus.com/inward/record.url?scp=85106369047&partnerID=8YFLogxK

M3 - Article

AN - SCOPUS:85106369047

SP - 88

EP - 114

JO - ДИФФЕРЕНЦИАЛЬНЫЕ УРАВНЕНИЯ И ПРОЦЕССЫ УПРАВЛЕНИЯ

JF - ДИФФЕРЕНЦИАЛЬНЫЕ УРАВНЕНИЯ И ПРОЦЕССЫ УПРАВЛЕНИЯ

SN - 1817-2172

IS - 4

ER -

ID: 88211728