Policy Uncertainty, Symbiosis, and the Optimal Fiscal and Monetary Conservativeness

14 Pages Posted: 9 Nov 2008 Last revised: 4 May 2010

See all articles by Giovanni Di Bartolomeo

Giovanni Di Bartolomeo

Sapienza University of Rome, Department of Economics and Law

Francesco Giuli

University of Rome III - Department of Economics

Marco Manzo

Ministry of Economy and Finance, Italy

Date Written: June 1, 2008

Abstract

This paper extends a well-known macroeconomic stabilization game between monetary and fiscal authorities introduced by Dixit and Lambertini (American Economic Review, 93: 1522-1542) to multiplicative (policy) uncertainty. We find that even if fiscal and monetary authorities share a common output and inflation target (i.e. the symbiosis assumption), the achievement of the common targets is no longer guaranteed; under multiplicative uncertainty, in fact, a time consistency problem arises unless policymakers' output target is equal to the natural level.

Keywords: Monetary-Fiscal Policy Interactions, Uncertainty, Symbiosis

JEL Classification: E61, E63

Suggested Citation

Di Bartolomeo, Giovanni and Giuli, Francesco and Manzo, Marco, Policy Uncertainty, Symbiosis, and the Optimal Fiscal and Monetary Conservativeness (June 1, 2008). Emprica, Journal of Applied Economics and Economic Policy, Vol. 36, pp. 46-474, 2009. Available at SSRN: https://ssrn.com/abstract=1296544

Giovanni Di Bartolomeo

Sapienza University of Rome, Department of Economics and Law ( email )

via Castro del Laurenziano 9
Roma, 00191
Italy

Francesco Giuli (Contact Author)

University of Rome III - Department of Economics ( email )

via Ostiense, 139
Rome, 00154
Italy

Marco Manzo

Ministry of Economy and Finance, Italy ( email )

Rome
Italy

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