Does the long-run Taylor principle (Davig and Leeper, 2007) hold when both monetary and fiscal policies can switch and there is positive trend inflation? We find that with high trend inflation passive monetary detours are no longer possible, whatever fiscal policy is in place. This has important policy implications in terms of flexibility and monetary-fiscal authorities coordination.
High trend inflation and passive monetary detours / G. Ascari, A. Florio, A. Gobbi. - In: ECONOMICS LETTERS. - ISSN 0165-1765. - 172(2018 Nov), pp. 138-142. [10.1016/j.econlet.2018.08.030]
High trend inflation and passive monetary detours
A. Gobbi
2018
Abstract
Does the long-run Taylor principle (Davig and Leeper, 2007) hold when both monetary and fiscal policies can switch and there is positive trend inflation? We find that with high trend inflation passive monetary detours are no longer possible, whatever fiscal policy is in place. This has important policy implications in terms of flexibility and monetary-fiscal authorities coordination.
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