1,721,018 research outputs found
Fiscal Stimulus of Last Resort
No full textI examine global dynamics in a monetary model with overlapping generations of finite-horizon agents, nonseparable preferences over consumption and real money balances, and a binding lower bound on nominal interest rates. Debt targeting rules exacerbate the possibility of self-fulfilling liquidity traps, for agents expect austerity following deflationary slumps. Conversely, activist but sustainable fiscal policy regimes-implementing intertemporally balanced tax cuts and/or transfer increases in response to disinflationary trajectories-are capable of escaping liquidity traps and embarking inflation into a globally stable path that converges to the target. Should fiscal stimulus of last resort be overly aggressive, however, spiral dynamics around the liquidity-trap steady state exist, causing global indeterminacy
External Debt and Stabilizing Macroeconomic Policies
Full text linkThis paper investigates the dynamic effects of fiscal and monetary feedback policy rules in a small open economy with flexible exchange rates and risk premia on external debt. It is shown that equilibrium uniqueness and stability occur under locally Ricardian fiscal policies regardless of the degree of reaction of nominal interest rates to inflation, in contrast with closed-economy environments. Fiscal revaluation mechanisms of the type predicted by the fiscal theory of the price level are precluded by international parity conditions. As a result, locally non-Ricardian fiscal policies are destabilizing even under an accommodating monetary policy stance
Macroeconomic policies and equilibrium determinacy
No full textThis paper studies the issue of equilibrium determinacy under monetary and fiscal policy feedback rules in an optimizing general equilibrium model with overlapping generations and flexible prices. It is shown that equilibria may be determinate also when monetary and fiscal policies are both passive. In particular, under passive monetary rules equilibrium uniqueness is more likely to be verified when fiscal policies are less committed to public debt stabilization
Real balance effects, determinacy and optimal monetary policy
Full text linkThis paper presents a dynamic New Keynesian macroeconomic model with real balance effects. Both the conditions of equilibrium
determinacy under an interest rate rule of the Taylor-type and the implications for optimal monetary policy are considered. We find a number of results that would not appear in the traditional frame-work. It is shown that the real balance effect makes the so-called "Taylor principle" not necessary for determinacy of rational expectations equilibrium. A relatively "passive" monetary policy is found to be feasible also in the long run, but not necessarily optimal. In particular, within a class of policy rules constrained to be a linear function of state variables, an "active" optimal interest rate rule is more likely to be verified under commitment rather than under discretion
Equilibrium Determinacy under Monetary and Fiscal Policies in an Overlapping Generations Model
No full textTesting Fiscal Solvency in Macroeconomics
No full textThis paper presents a literature review regarding the assessment of government solvency and fiscal policy. While indicators for fiscal sustainability are forward looking and based on expected future fiscal policies, tests are backward looking and based on information about the past values of fiscal variables. In this paper, we describe the main tests for fiscal solvency
Demographic Change and Real House Prices: A General Equilibrium Perspective
Full text linkThis paper analyzes the effects of demographic changes on the long-run pattern of real house prices in an overlapping generations general equilibrium model with housing-wealth effects. It is demonstrated that declines in the birth rate and in population growth, associated with increases in life expectancy, generate disinflation and a fall in the real interest rate, triggering a rise in real house prices over the long run. The positive relationship between contemporary demographic trends and real house price trends observed in the United States and in the OECD countries is thus not puzzling, but is perfectly consistent with dynamic macroeconomic theory. In this context, ceteris paribus, falling prices in the housing market are possible only when self-fulfilling boom-bust dynamics, unrelated to demographic fundamentals, occur
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