ISSN 1817-2172, рег. Эл. № ФС77-39410, ВАК

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Dynamics of Monetary and Fiscal Policy in a New Keynesian Model in Continuous Time


Tatyana Anatolyevna Alexeeva

HSE University
Saint Petersburg School of Physics, Mathematics, and Computer Science,
Kantemirovskaya Street, 3
St Petersburg, 194100, Russia
Cand. of Physical and Mathematical Sciences

Timur Nazirovich Mokaev

St. Petersburg State University,
Faculty of Mathematics and Mechanics,
St. Petersburg, 198504, Russia
Dr.of Physical and Mathematical Sciences

Iuliia Alexandrovna Polshchikova

Financial Research Institute of the Ministry of Finance of the Russian Federation,
Centre of macroeconomic research,
Nastasyinsky Lane, 3, b. 2,
Moscow, 127006, Russia
HSE University
Faculty of Economic Sciences,
Myasnitskaya Ulitsa, 20
Moscow, 101000, Russia


The paper studies monetary and fiscal policy rules consistent with determinate equilibrium dynamics. We consider a three-dimensional New Keynesian model in continuous time with Rotemberg price-setting mechanism and non-Ricardian consumers, and study dynamics of the model under monetary and fiscal policies interactions. The key analytical finding is that the uniqueness of the equilibrium solution can be never achieved while both policies are in their active regimes. Another combinations of policies' regimes can lead to local equilibrium determinacy through control of appropriate values of Taylor coefficients ($f^M$ and $f^F$). We demonstrate that in contrast to economy with Ricardian consumers, making government debt a net asset leads to creation of an additional channel for fiscal and monetary policy interaction and changing the conditions for local equilibrium determinacy. In addition, we show that in case of explosive equilibrium dynamics, limit cycle or more complicated attracting set could appear, including chaotic attractors of various natures.

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