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Author: Mr.Michael Kumhof Publisher: International Monetary Fund ISBN: 1451874316 Category : Business & Economics Languages : en Pages : 41
Book Description
We study the welfare properties of an economy where both monetary and fiscal policy follow simple rules, and where a subset of agents is borrowing constrained. The optimized fiscal rule is far more aggressive than automatic stabilizers, and stabilizes the income of borrowingconstrained agents, rather than output. The optimized monetary rule features super-inertia and a very low coefficient on inflation, which minimizes real wage volatility. The welfare gains of optimizing the fiscal rule are far larger than the welfare gains of optimizing the monetary rule. The preferred fiscal instruments are government spending and transfers targeted to borrowing-constrained agents.
Author: Mr.Michael Kumhof Publisher: International Monetary Fund ISBN: 1451874316 Category : Business & Economics Languages : en Pages : 41
Book Description
We study the welfare properties of an economy where both monetary and fiscal policy follow simple rules, and where a subset of agents is borrowing constrained. The optimized fiscal rule is far more aggressive than automatic stabilizers, and stabilizes the income of borrowingconstrained agents, rather than output. The optimized monetary rule features super-inertia and a very low coefficient on inflation, which minimizes real wage volatility. The welfare gains of optimizing the fiscal rule are far larger than the welfare gains of optimizing the monetary rule. The preferred fiscal instruments are government spending and transfers targeted to borrowing-constrained agents.
Author: Gomis-Porqueras, Pere Publisher: ISBN: Category : Languages : en Pages : 27
Book Description
In this paper we study optimal monetary and fiscal policies, and the welfare costs of inflation, within the Lagos and Wright (2005) framework. Monetary equilibria may be inefficient without fiscal policy tools due to bargaining frictions. We show that subsidies in decentralized markets can be implemented to alleviate underproduction, while money is still essential. Deviations from the Friedman rule may be large, and having fiscal and monetary policies in place results in considerable welfare gains. When fiscal policies are held constant, the welfare costs of increasing inflation may be as high as 8% of lifetime consumption. When lump sum monetary transfers are not available, a positive production subsidy may be inflationary and welfare reducing. However, sales taxes in the decentralized market and production taxes in the centralized market may increase welfare. The optimality of the Friedman rule in this case depends crucially on the bargaining power of the buyer, and equilibria are not first best.
Author: Arturo Anton Publisher: LAP Lambert Academic Publishing ISBN: 9783838314228 Category : Languages : en Pages : 100
Book Description
Over the past twenty five years, fiscal and monetary authorities around the world have pursued policies roughly consistent with the insights from optimal monetary and fiscal policy. In the area of monetary policy, the modern consensus is to set policy rules so that nominal interest rates and inflation are low. In the area of fiscal policy, statutory corporate income tax rates have decreased sharply in OECD countries on average over time. Typically, theoretical models in the literature usually examine either monetary or fiscal policies in isolation, but not both of them simultaneously. This book presents two alternative dynamic, general equilibrium models where the prescriptions from optimal monetary and fiscal policies are simultaneously examined. These models offer some new insights on the interaction of such policies, especially in terms of their effects on household s welfare. A third chapter examines optimal fiscal policy in the context of preference reversals. This book should be especially useful for policymakers in the area of macroeconomics and researchers working in the field.
Author: Harold L. Cole Publisher: Oxford University Press ISBN: 0190076062 Category : Business & Economics Languages : en Pages : 277
Book Description
In Monetary and Fiscal Policy Through a DSGE Lens, Harold L. Cole develops and extends versions of a classic quantitative model of economic growth to take on a wide range of topics in monetary and fiscal policy. Bridging the gap between current undergraduate and graduate texts in the field, this comprehensive book covers the basic elements of advanced macroeconomics and equips readers to understand the debate on key policy questions. By using the simple DSGE, or dynamic stochastic general equilibrium, framework to build a series of quantitative models, the book combines a gradual introduction to advanced analytic methods with computer programming and quantitative policy analysis. In a clear discussion of the sophisticated interaction between theory and data, Cole explains how to gauge how well a model captures key elements in the data and how to reverse engineer a model to data. The book covers costs of inflation, optimal monetary policy, the impact of labor and capital taxes, and optimal fiscal policy. It systematically discusses technical material including the new Keynesian liquidity shock models, standard analytic methods, such as Lagrangian methods, and computational methods using Matlab and Python. With a strong computational emphasis, the volume teaches how to program up and solve systems of non-linear equations and develop models to study the macroeconomy. Knowing how to deeply understand and analyze models and develop computational code to evaluate the implications of those models is essential for students of macroeconomics. This book connects the standard undergraduate material to the elaborate models of advanced graduate courses with systematic and logical coverage of the basics of advanced modern macroeconomics.
Author: Sven Jari Stehn Publisher: International Monetary Fund ISBN: Category : Business & Economics Languages : en Pages : 36
Book Description
This paper characterises the jointly optimal monetary and fiscal stabilisation policy in a new Keynesian model that allows for consumers who lacking access to asset markets consume their disposable income each period. With full asset market participation, the optimal policy relies entirely on the interest rate to stabilise cost-push shocks and government expenditure is not changed. When asset market participation is limited, there is a case for fiscal stabilisation policy. Active use of public spending raises aggregate welfare because it enables a more balanced distribution of the stabilisation burden across asset-holding and non-asset-holding consumers. The optimal response of government expenditure is sensitive to the financing scheme and whether the policymaker has access to a targeted transfer that can directly redistribute resources between consumers.
Author: Stephanie Schmitt-Grohe Publisher: ISBN: Category : Monetary policy Languages : en Pages : 49
Book Description
The goal of this paper is to compute optimal monetary and fiscal policy rules in a real business cycle model augmented with sticky prices, a demand for money, taxation, and stochastic government consumption. We consider simple policy rules whereby the nominal interest rate is set as a function of output and inflation, and taxes are set as a function of total government liabilities. We require policy to be implementable in the sense that it guarantees uniqueness of equilibrium. We do away with a number of empirically unrealistic assumptions typically maintained in the related literature that are used to justify the computation of welfare using linear methods. Instead, we implement a second-order accurate solution to the model. Our main findings are: First, the size of the inflation coefficient in the interest-rate rule plays a minor role for welfare. It matters only insofar as it affects the determinacy of equilibrium. Second, optimal monetary policy features a muted response to output. More importantly, interest rate rules that feature a positive response of the nominal interest rate to output can lead to significant welfare losses. Third, the optimal fiscal policy is passive. However, the welfare losses associated with the adoption of an active fiscal stance are negligible.
Author: Mr.Michael Kumhof
Author: Mr.Michael Kumhof
Author: Fernando Alvarez
Author: Gomis-Porqueras, Pere
Author: Arturo Anton
Author: Harold L. Cole
Author: Pierpaolo Benigno
Author: Sven Jari Stehn
Author: Michal Horvath
Author: Chiara Forlati
Author: Stephanie Schmitt-Grohe