TY - BOOK ID - 84543327 TI - Simple monetary rules under fiscal dominance AU - Kumhof, Michael. AU - Nunes, Ricardo. AU - Yakadina, Irina. AU - International Monetary Fund. AU - IMF Institute. PY - 2007 SN - 1462386083 1452763224 1282542451 1451912870 9786613822109 PB - [Washington, D.C.?] : International Monetary Fund, DB - UniCat KW - Banks and Banking KW - Inflation KW - Public Finance KW - Price Level KW - Deflation KW - Interest Rates: Determination, Term Structure, and Effects KW - National Government Expenditures and Related Policies: General KW - Fiscal Policy KW - Macroeconomics KW - Finance KW - Public finance & taxation KW - Expenditure KW - Zero lower bound KW - Real interest rates KW - Fiscal policy KW - Prices KW - Interest rates KW - Expenditures, Public KW - Monetary policy KW - Econometric models. UR - https://www.unicat.be/uniCat?func=search&query=sysid:84543327 AB - Is aggressive monetary policy response to inflation feasible in countries that suffer from fiscal dominance? We find that if nominal interest rates are allowed to respond to government debt, even aggressive rules that satisfy the Taylor principle can produce unique equilibria. However, resulting inflation is extremely volatile and zero lower bound on nominal interest rates is frequently violated. Within the set of feasible rules the optimal response to inflation is highly negative, and more aggressive inflation fighting is inferior from a welfare point of view. The welfare gain from responding to fiscal variables is minimal compared to the gain from eliminating fiscal dominance. ER -