The Roles of Monetary, Financial and Fiscal Policy with Rational Expectations

74 Pages Posted: 28 Dec 2002 Last revised: 19 Aug 2022

See all articles by Willem H. Buiter

Willem H. Buiter

Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Columbia University; Independent Economic Adviser; Independent

Date Written: November 1979

Abstract

The setup of the paper is as follows: Section I presents a fairly standard, small deterministic macromodel with a number of classical features. All markets clear instantaneously, there is no money illusion, and perfect foresight rules. The effects of monetary, financial, and fiscal policies in this model are analyzed. A number of nonneutrality propositions are stated. The drawback of this model is that it is ad hoc in the sense that private behavioral relationships have not been derived from explicit optimizing behavior. Section II, therefore, summarizes the results of some studies on debt neutrality and monetary superneutrality in a "fully rational" overlapping generations model. This leads to the conclusion that the ad hoc model of Section I is not a bad parable for such fully rational models. Section III abandons the assumption of universal instantaneous Wairasian equilibrium and considers the consequences of price and wage stickiness for the scope for stabilization policy; stochastic models are analyzed here, which also permits the consideration of some of the interesting issues associated with incomplete information.

Suggested Citation

Buiter, Willem H., The Roles of Monetary, Financial and Fiscal Policy with Rational Expectations (November 1979). NBER Working Paper No. w0412, Available at SSRN: https://ssrn.com/abstract=262040

Willem H. Buiter (Contact Author)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Columbia University ( email )

420 West 118th Street
New York, NY
United States

Independent Economic Adviser ( email )

Independent ( email )

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
28
Abstract Views
710
PlumX Metrics