TY  - JOUR
AU  - Persson,Mats
AU  - Persson,Torsten
AU  - Svensson,Lars E.O.
TI  - Time Consistency of Fiscal and Monetary Policy: A Solution
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11088
PY  - 2005
Y2  - January 2005
UR  - http://www.nber.org/papers/w11088
L1  - http://www.nber.org/papers/w11088.pdf
N1  - Author contact info:
Torsten Persson
Torsten and Ragnar Soderberg Chair in Economic Sci
Institute for International Economic Studies
Stockholm University
SE-106 91 Stockholm
SWEDEN
Tel: +46 8 163066
Fax: +46 8 6747801
E-Mail: Torsten.Persson@iies.su.se

Lars E.O. Svensson
Sveriges Riksbank
SE-103 37 Stockholm
SWEDEN
Tel: +46 8 787 0107
Fax: +46 8 21 0531
E-Mail: lars.svensson@iies.su.se
AB  - This paper demonstrates how time consistency of the Ramsey policy - the optimal fiscal and monetary policy under commitment - can be achieved. Each government should leave its successor with a unique maturity structure for the nominal and indexed debt, such that the marginal benefit of a surprise inflation exactly balances the marginal cost. Unlike in earlier papers on the topic, the result holds for quite a general Ramsey policy, including timevarying polices with positive inflation and positive nominal interest rates. We compare our results with those in Persson, Persson, and Svensson (1987), Calvo and Obstfeld (1990), and Alvarez, Kehoe, and Neumeyer (2004).
ER  -