Research

Precautionary Savers with Ricardian Propensities

This paper investigates the issue of price level indeterminacy under a pure interest rate peg in models that depart from standard Ricardian assumptions. Using a monetary version of Blanchard's finite horizons model, I find wealth effects operating on government bonds are not sufficient to determine a unique price level. Next, I consider price determination under a non-Ricardian fiscal authority. I show that, if agents rationally perceive the possibility of fiscal default, the price level is again indeterminate. I conclude that departures from Ricardian equivalence are not sufficient to ensure a unique price level under a monetary policy of pure interest rate pegging.

Publication Information
Article Title: Precautionary Savers with Ricardian Propensities
Journal: Journal of Monetary Economics (Apr, 1997)
v. 44, iss. 1, pp. 131-48
Author(s): Cushing, Matthew J
Researcher Information
    
Cushing, Matthew J
Cushing, Matthew J
Professor of Economics
Expertise:
  • Labor Economics
  • Econometrics
  • Macroeconomics
Economics
CoB 525 U
P.O. Box 880489
University of Nebraska-Lincoln
Lincoln, NE 68588-0489, USA
Phone: (402) 472-2323
Fax: (402) 472-9700
mcushing1@unl.edu