Price Level Determinacy and Monetary Policy under a Balanced Budget Requirement

Topics:
Budgeting
Tags:
Federal Reserve Board,
Finance,
Financial Planning,
Financial Services
Source:
The Federal Reserve Board

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Overview: This paper analyzes the implications of a balanced budget fiscal policy rule for the determinacy of the price level in a cash-in-advance economy under three alternative monetary policy regimes. It shows that, in such stylized models with flexible prices and a period-by-period balanced budget requirement, the price level is determinate under a money growth rate peg and is indeterminate under a pure nominal interest rate peg.

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Format: PDF | Size: 228KB | Date: Jan 1997 | Pages: 25

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