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Author: International Monetary Fund Publisher: International Monetary Fund ISBN: 1451931239 Category : Business & Economics Languages : en Pages : 33
Book Description
In pursuing a steady-state reserve target, policymakers in small open economies can resort to devaluation or to temporary increases in public saving. This paper contrasts the dynamic implications of these alternative policies in a model with optimizing agents who possess perfect foresight. In general, the private sector cannot be insulated from the effects of the government’s reserve-accumulation policies. The dynamic effects of devaluation depend on the fiscal policy rule in effect. In contrast to devaluation, the “equivalent” fiscal policies imply discontinuities in private consumption and temporary tax increases may cause key macroeconomic variables to overshoot their steady-state values.
Author: International Monetary Fund Publisher: International Monetary Fund ISBN: 1451931239 Category : Business & Economics Languages : en Pages : 33
Book Description
In pursuing a steady-state reserve target, policymakers in small open economies can resort to devaluation or to temporary increases in public saving. This paper contrasts the dynamic implications of these alternative policies in a model with optimizing agents who possess perfect foresight. In general, the private sector cannot be insulated from the effects of the government’s reserve-accumulation policies. The dynamic effects of devaluation depend on the fiscal policy rule in effect. In contrast to devaluation, the “equivalent” fiscal policies imply discontinuities in private consumption and temporary tax increases may cause key macroeconomic variables to overshoot their steady-state values.
Author: J. Saul Lizondo Publisher: ISBN: Category : Languages : en Pages : 33
Book Description
In pursuing a steady-state reserve target, policymakers in small open economies can resort to devaluation or to temporary increases in public saving. This paper contrasts the dynamic implications of these alternative policies in a model with optimizing agents who possess perfect foresight. In general, the private sector cannot be insulated from the effects of the government`s reserve-accumulation policies. The dynamic effects of devaluation depend on the fiscal policy rule in effect. In contrast to devaluation, the quot;equivalentquot; fiscal policies imply discontinuities in private consumption and temporary tax increases may cause key macroeconomic variables to overshoot their steady-state values.
Author: International Monetary Fund Publisher: International Monetary Fund ISBN: 1451969473 Category : Business & Economics Languages : en Pages : 40
Book Description
This paper constructs and analyzes an optimizing model of a highly-indebted small open economy. An important innovation in the model is the incorporation of sovereign risk through the specification of an upward-sloping foreign debt supply function. The model is used to examine the interaction between external debt and growth in response to various policies and exogenous disturbances. It is shown that structural policies intended to reduce the fiscal deficit or increase productivity can lead to tradeoffs in their effect on capital accumulation and the stock of debt.
Author: Emmanuel Farhi Publisher: ISBN: Category : Devaluation of currency Languages : en Pages : 52
Book Description
We show that even when the exchange rate cannot be devalued, a small set of conventional fiscal instruments can robustly replicate the real allocations attained under a nominal exchange rate devaluation in a standard New Keynesian open economy environment. We perform the analysis under alternative pricing assumptions - producer or local currency pricing, along with nominal wage stickiness; under alternative asset market structures, and for anticipated and unanticipated devaluations. There are two types of fiscal policies equivalent to an exchange rate devaluation - one, a uniform increase in import tariff and export subsidy, and two, a value-added tax increase and a uniform payroll tax reduction. When the devaluations are anticipated, these policies need to be supplemented with a consumption tax reduction and an income tax increase. These policies have zero impact on fiscal revenues. In certain cases equivalence requires, in addition, a partial default on foreign bond holders. We discuss the issues of implementation of these policies, in particular, under the circumstances of a currency union -- National Bureau of Economic Research web site.
Author: Mr. Paul Levine Publisher: International Monetary Fund ISBN: 1451916051 Category : Business & Economics Languages : en Pages : 81
Book Description
We develop a optimal rules-based interpretation of the ''three pillars macroeconomic policy framework'': a combination of a freely floating exchange rate, an explicit target for inflation, and a mechanism than ensures a stable government debt-GDP ratio around a specified long run. We show how such monetary-fiscal rules need to be adjusted to accommodate specific features of emerging market economies. The model takes the form of two-blocs, a DSGE emerging small open economy interacting with the rest of the world and features, in particular, financial frictions It is calibrated using Chile and US data. Alongside the optimal Ramsey policy benchmark, we model the three pillars as simple monetary and fiscal rules including and both domestic and CPI inflation targeting interest rate rules alongside a ''Structural Surplus Fiscal Rule'' as followed recently in Chile. A comparison with a fixed exchange rate regime is made. We find that domestic inflation targeting is superior to partially or implicitly (through a CPI inflation target) or fully attempting to stabilizing the exchange rate. Financial frictions require fiscal policy to play a bigger role and lead to an increase in the costs associated with simple rules as opposed to the fully optimal policy.
Author: Alain Ize Publisher: ISBN: Category : Languages : en Pages : 32
Book Description
Fiscally weak governments may prefer to reduce through devaluation the real value of their domestic financial obligations, rather than adjusting the fiscal deficit in order to keep servicing their debt. If the public anticipates this possibility, within a flexible exchange rate system, lose fiscal policies provoke exchange rate depreciations, while efforts to bring the deficit under control have the opposite effect. This interpretation contrasts with conventional views on the impact of fiscal expansions. The paper applies this quot;fiscal approachquot; to exchange rates to two alternative models of exchange rate dynamics in a small open economy, and analyzes some policy implications.
Author: International Monetary Fund
Author: International Monetary Fund
Author: J. Saul Lizondo
Author: José Saúl Lizondo
Author: Patrizio Tirelli
Author: International Monetary Fund
Author: Emmanuel Farhi
Author: Mr. Paul Levine
Author: Alain Ize
Author: R. Tiff Macklem
Author: Chae-Deug Yi