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ON THE OPTIMAL MIX OF FISCAL AND MONETARY POLICY ACTIONS

  

Apostolis Philippopoulos

Athens University of Economics and Business, and CESifo

 

Petros Varthalitis

Athens University of Economics and Business

 

Vanghelis Vassilatos

Athens University of Economics and Business

 

 

ABSTRACT

We study optimized monetary and fiscal feedback policy rules. The setup is a conventional New Keynesian DSGE model calibrated to match data from the euro area. Our aim is to welfare rank alternative tax-spending policy instruments used for shock stabilization and/or debt consolidation when, at the same time, the monetary authorities follow a Taylor rule for the interest rate.

 

Keywords: Feedback policy rules, New Keynesian.

JEL: E6, F3, H6.

 

Acknowledgements: We thank Kostas Angelopoulos, Harris Dellas, George Economides, Jim Malley, Dimitris Papageorgiou and Evi Pappa for discussions and comments. We also thank seminar participants at the Conference on Economic Theory and Econometrics at Milos, Greece, July 2012, especially Fabrice Collard and Isabel Correia, for comments. We thank the Bank of Greece, in particular Heather Gibson and George Tavlas, for their hospitality when this paper was written. The second author is grateful to the Irakleitos Research Program for .financing his PhD studies. All views expressed in the paper are solely those of the authors and do not necessarily reflect the position of any other person or institution.

 

 

Correspondence:

Apostolis Philippopoulos

Department of Economics

Athens University of Economics and Business

Athens 10434, Greece

tel:+30-210-8203357

email: aphil@aueb.gr


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