2015, №3

Macroeconomic policy under uncertain fiscal policy preferences

Abstract:

This paper analyzes macroeconomic policy under uncertain fiscal policy preferences. We show that uncertain preferences of the government lead to more expansionary monetary policy and more contractionary fiscal policy. As a result, inflation bias is aggravated: expected inflation increases, while expected output drops. Nevertheless, if fiscal multiplier is certain, preference uncertainty does not matter anymore.

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Olga S. Kuznetsova – National Research University «Higher School of Economics», Researcher at the Laboratory of Macroeconomic Analysis (Moscow, Russian Federation; e-mail: okuznetsova@hse.ru).

Sergey A. Merzlyakov Cand. Sci. (Econ.), Associate Proffessor, Deputy Departmental Head, International Laboratory for Macroeconomic Analysis, Higher School of Economics (Moscow, Russian Federation; e-mail: smerzlyakov@hse.ru).