WP  Global Economy  2013.08.01

Working Paper(13-003E) "Asset Price Targeting Government Spending and Equilibrium Indeterminacy in A Sticky-Price Economy"

This is working paper.

 This study investigates aggregate implications of fiscal policy that responds to asset price fluctuations. In our sticky-price model, the monetary authority follows a Taylor rule and the fiscal authority follows a rule that the target of government spending is asset prices and responds negatively to the asset price fluctuations. It is shown that government spending that targets asset prices is a source of equilibrium indeterminacy.