Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation
Lancaster University; University of Milano-Bicocca
New Keynesian DSGE model with limited asset market participation (rule-of-thumb consumers), internal consumption habits, sticky prices (Calvo), sticky wages (Calvo), and fiscal policy rules (lump-sum taxes reacting to output gap, real income gr
monopolistic competition with Calvo price setting
Zero inflation steady state with efficient production subsidy eliminating markup distortions
Paper assumes efficient steady state with zero inflation as baseline for welfare analysis; optimal policy minimizes deviations from this steady state