Monetary and Fiscal Policy When People Have Finite Lives / Roger E.A. Farmer, Pawel Zabczyk.

Format:

Book

Author/Creator:

Farmer, Roger E.A.

Contributor:

Zabczyk, Pawel.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25445.

NBER working paper series no. w25445

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

We find a sufficient condition for a three-generation Overlapping Generations (OLG) model to possess four steady-state equilibria and we show that our result also holds in a 62- generation model where the income process is calibrated to U.S. data. In our calibrated model, there exists a dynamically efficient steady state equilibrium where money has positive value and where both the price level and the real interest rate are indeterminate. There are no frictions or rigidities of any kind other than the natural assumption that people are born and die at different dates. Our paper is the first to provide a long-lived example of an OLG model in which there exists an indeterminate steady state where money has value when both monetary and fiscal policy are active. Our work has implications for the question of which fiscal and monetary policies are welfare improving and which are not.

Notes:

Print version record

January 2019.