### Abstract

Original language | English |
---|---|

Pages (from-to) | 108-119 |

Number of pages | 11 |

Journal | Journal of Mathematical Economics |

Volume | 67 |

Early online date | 29 Sep 2016 |

DOIs | |

Publication status | Published - 1 Dec 2016 |

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### Keywords

- Nominal price rigidities
- Interest rates
- Non-Ricardian fiscal policy

### Cite this

**Nominal rigidities equilibria in a non-Ricardian economy.** / Kokonas, Nikolaos.

Research output: Contribution to journal › Article

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TY - JOUR

T1 - Nominal rigidities equilibria in a non-Ricardian economy

AU - Kokonas, Nikolaos

PY - 2016/12/1

Y1 - 2016/12/1

N2 - I consider a cash-in-advance economy with nominal price rigidities. Nominal interest rates are the cost of liquidity and fiscal policy sets nominal transfers that affect the distribution of wealth. Under a fiscal policy associated with an unequal distribution of wealth and for policies of low or even zero interest rates, coordination failures exist, that is, involuntary unemployment persist even if prices are set at full employment levels. Coordination failures exist if and only if nominal rates are below a threshold. Moreover, I demonstrate the following result on welfare: full employment allocations at a nominal rate equal to the threshold (high liquidity costs) are better, in terms of welfare, from unemployment allocations at any non-negative interest rates below the threshold. On the other hand, under a sufficiently progressive fiscal system that reduces the inequality in the wealth distribution, coordination failures do not exist.

AB - I consider a cash-in-advance economy with nominal price rigidities. Nominal interest rates are the cost of liquidity and fiscal policy sets nominal transfers that affect the distribution of wealth. Under a fiscal policy associated with an unequal distribution of wealth and for policies of low or even zero interest rates, coordination failures exist, that is, involuntary unemployment persist even if prices are set at full employment levels. Coordination failures exist if and only if nominal rates are below a threshold. Moreover, I demonstrate the following result on welfare: full employment allocations at a nominal rate equal to the threshold (high liquidity costs) are better, in terms of welfare, from unemployment allocations at any non-negative interest rates below the threshold. On the other hand, under a sufficiently progressive fiscal system that reduces the inequality in the wealth distribution, coordination failures do not exist.

KW - Nominal price rigidities

KW - Interest rates

KW - Non-Ricardian fiscal policy

U2 - 10.1016/j.jmateco.2016.09.002

DO - 10.1016/j.jmateco.2016.09.002

M3 - Article

VL - 67

SP - 108

EP - 119

JO - Journal of Mathematical Economics

JF - Journal of Mathematical Economics

SN - 0304-4068

ER -