A Continuous-Time Model of the Term Structure of Interest Rates with Fiscal-Monetary Policy Interactions

38 Pages Posted: 17 Nov 2008

See all articles by Massimiliano Marzo

Massimiliano Marzo

Department of Management, University of Bologna

Silvia Romagnoli

University of Bologna - Department of Statistics

Paolo Zagaglia

University of Bologna; Rimini Centre for Economic Analysis

Date Written: October 24, 2008

Abstract

We study the term structure implications of the fiscal theory of price level determination. We introduce the intertemporal budget constraint of the government in a general equilibrium model in continuous time. Fiscal policy is set according to a simple rule whereby taxes react proportionally to real debt. We show how to solve for the prices of real and nominal zero coupon bonds.

Keywords: bond pricing, fiscal policy, term structure of interest rates

JEL Classification: D91, E43, E61, G12

Suggested Citation

Marzo, Massimiliano and Romagnoli, Silvia and Zagaglia, Paolo, A Continuous-Time Model of the Term Structure of Interest Rates with Fiscal-Monetary Policy Interactions (October 24, 2008). Bank of Finland Research Discussion Paper No. 25/2008, Available at SSRN: https://ssrn.com/abstract=1300929 or http://dx.doi.org/10.2139/ssrn.1300929

Massimiliano Marzo

Department of Management, University of Bologna ( email )

34, Via Capo di Lucca
Bologna, Bologna 40126
Italy
0512098091 (Phone)

Silvia Romagnoli

University of Bologna - Department of Statistics ( email )

Paolo Zagaglia (Contact Author)

University of Bologna ( email )

Via degli Ariani 1
Ravenna, 48121
Italy

Rimini Centre for Economic Analysis ( email )

Rimini
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
73
Abstract Views
590
rank
349,773
PlumX Metrics