A continuous-time model of the term structure of interest rates with fiscal-monetary policy interactions

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Title: A continuous-time model of the term structure of interest rates with fiscal-monetary policy interactions
Author: Marzo, Massimiliano ; Romagnoli, Silvia ; Zagaglia, Paolo
Organization: Suomen Pankki
Series: Bank of Finland Research Discussion Papers
Series number: 25/2008
Year of publication: 2008
Publication date: 1.9.2008
Pages: 32 s.
Keywords: julkinen talous; korkojen aikarakenne; korot; mallit; rahapolitiikka; finanssipolitiikka; joukkovelkakirjat; hinnoittelu; tuottokäyrät; menetelmät; ekonometria;
JEL: G12
Abstract: We study the term structure implications of the fiscal theory of price level determination. We introduce the intertemporal budget constraint of the government in a general equilibrium model in continuous time. Fiscal policy is set according to a simple rule whereby taxes react proportionally to real debt. We show how to solve for the prices of real and nominal zero coupon bonds. Keywords: bond pricing, fiscal policy, mathematical methods JEL classification numbers: D9, G12
Rights: https://helda.helsinki.fi/bof/copyright


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