Monetary and Fiscal Policy under Deep Habits ∗

  title={Monetary and Fiscal Policy under Deep Habits ∗},
  author={Campbell Leith Ioana Moldovan Ra},
  • Campbell Leith Ioana Moldovan Ra
  • Published 2009
Recent work on optimal policy in sticky price models suggests that demand management through fiscal policy adds little to optimal monetary policy. We explore this consensus assignment in an economy subject to ‘deep’ habits at the level of individual goods where the counter-cyclicality of mark-ups this implies can result in government spending crowding-in private consumption in the short run. We explore the robustness of this mechanism to the existence of price discrimination in the supply of… CONTINUE READING


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