Download or read book Essays on the Dynamic Effects of Monetary and Fiscal Policy written by George Themistocles Kanaginis and published by . This book was released on 1991 with total page 202 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on the State Dependent Effects of Monetary Policy and Fiscal Policy written by Cheng Zhou and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation analyzes the effects of monetary policy and fiscal policy from a state-dependent perspective. The first chapter is on the dynamic effect of monetary policy on asset price. Employing a two-state threshold local projection method, we find that when the Fed increases the Federal Funds rate, the stock price decreases in normal times, but increases during bubbly episodes. We allow time-varying risk premium and show that this result is driven by both the asymmetric effects on fundamentals and the existence of bubbles. Moreover, the paper captures the effect of an exogenous tightening monetary shock on stock prices as an increasing function of the size of bubbles, using a flexible semiparametric varying-coefficient model specification. The state-dependent evidence is more informative in measuring monetary policy effects than linear or time-varying methods, and is also robust to different identification schemes and various definitions of bubbles. This paper points out two important transmission channels of monetary policy on asset price: risk premium and asset bubbles, which are often ignored in theoretical models. On the policy side, our empirical analysis suggests that central banks should be cautious about adopting "leaning against bubble" monetary policies when the bubble size is relatively large. Another contribution is that we propose a novel empirical framework to study generalized state-dependent impulse response functions, a methodology which should have many applications in macroeconomics. The second chapter uses more than one hundred years of US historical data to examine the fiscal multiplier and how it may differ during different economic conditions. Using the flexible semiparametric varying coefficient method in the framework of local projections, we directly model the fiscal multiplier as a function of various state variables. The paper shows that the U.S. fiscal multiplier is slightly below one and approximately the same, during periods of slack as compared to normal times. Our results suggest that fiscal policy was not necessarily a more powerful tool to stimulate aggregate demand during the "Great Recession". The electronic version of this dissertation is accessible from http://hdl.handle.net/1969.1/155721

Download or read book Essays on Monetary and Fiscal Policy written by Choongryul Yang and published by . This book was released on 2020 with total page 392 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation investigates the transmission of monetary and fiscal policy using both empirical and theoretical frameworks. Chapter 1 examines how the number of products sold by a firm affect its decisions regarding price setting and information acquisition. Using a firm-level survey from New Zealand, I show that firms that produce more goods have both better information about aggregate inflation and more frequent but smaller price changes. To characterize the implications of these empirical findings for the ability of monetary policy to stimulate the economy, I develop a new dynamic general equilibrium model with rationally inattentive multi-product firms that pay a menu cost to reset their prices. I show that the interaction of the menu cost and rational inattention frictions leads firms to adopt a wait-and-see policy and gives rise to a new selection effect: firms have time-varying inaction bands widened by their subjective uncertainty about the economy such that price adjusters choose to be better informed than non-adjusters. This selection effect endogenously generates a distribution of desired price changes with a majority near zero and some very far from zero, which acts as a strong force to amplify monetary non-neutrality. I calibrate the model to be consistent with the micro-evidence on both prices and inattention and find two main quantitative results. First, the new selection effect, coupled with imperfect information of price setters, leads to real effects of monetary policy shocks in the one-good version of the model that are nearly as large as those in the Calvo model. Second, in the two-good version of the model, as firms optimally choose to have better information about monetary shocks, the real effects of monetary policy shocks decline by 20%. In Chapter 2, joint with Hassan Afrouzi, we develop a general equilibrium flexible price model with dynamic rational inattention in which the slope of the Phillips curve is endogenous to systematic aspects of monetary policy. This Phillips curve is flatter when the monetary policy is more hawkish: rationally inattentive firms find it optimal to ignore monetary policy shocks when the monetary authority commits to stabilize nominal variables. Moreover, an unexpectedly more dovish monetary policy leads to a completely flat Phillips curve in the short-run and a steeper Phillips curve in the long-run. We also develop a tractable method for solving general dynamic rational inattention models in linear quadratic Gaussian setups. Chapter 3 asks whether the effectiveness of fiscal stimulus policy depends on the degree of economic income inequality. Many previous works about state-dependence of fiscal multiplier have focused on the degree of slack in the economy. In a surge of concerns about rising inequality of the U.S., I use rich historical state-level data on military procurement and inequality to find the relationship between the degree of income inequality and the local government spending multipliers. I show that the effects of government spending shocks on output are larger in low-inequality states than in high-inequality states. In contrast, I find no evidence that employment multipliers differ by the extent of income inequality. These results are robust to various specifications and other sources of inequality data. I also estimate aggregate output multipliers using historical military spending and income inequality data. I find the evidence that aggregate output multipliers are high when the income inequality is low. Thus, both local and aggregate multipliers are significantly affected by the degree of income inequality of an economy. I consider a variety of potential theoretical explanations for the results, including heterogeneous within-sector inequality and distributional effects of government spending shock, but find that none can adequately explain this finding

Download or read book Public Finance and Stabilization Policy written by Richard Abel Musgrave and published by . This book was released on 1974 with total page 392 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Monetary and Fiscal Policy Interactions in Small Open Economies written by Thitima Chucherd and published by . This book was released on 2013 with total page 474 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis addresses interactions between monetary and fiscal policies in a theoretical dynamic stochastic general equilibrium (DSGE) model of a small open economy and in an empirical model under a structural vector error correction model (SVECM). The thesis consists of three essays. The contribution is both theoretical and empirical that enables a better understanding of the complexity of interactions between monetary and fiscal policies in small open economies. The first essay examines the equilibrium determinacy under monetary and fiscal rules. The goal is to investigate how monetary and fiscal policy interactions ensure a unique and non-explosive (determinate) equilibrium for a small open economy. The study focuses when policy makers implement a set of policy mixes to address domestic output price inflation control for monetary policy, debt stabilization for fiscal policy, and joint output stabilization tasks. The result indicates that two policy schemes facilitate a determinate equilibrium. First, monetary policy actively controls inflation when fiscal policy sets a sufficient feedback on debt. Second, monetary policy becomes passive against inflation when fiscal policy is insolvent. Adding output stabilization to each rule simply causes variants of this fundamental. An interest rate rule with output stabilization can be more passive against inflation while providing a stronger response to the output gap. Fiscal policy is required to set higher feedback on debt along with its stronger counter-cyclical policy. The second essay links between the equilibrium determinacy and policy optimization. This essay provides insights into the design of policy mixes and compares determinacy outcomes between two theoretical models of a small open economy: with and without an explicit exchange rate role. This study shows that policy interactions in a small open economy with an endogenous exchange rate is quite sophisticated, especially when a monetary rule is added with an output stabilization task and/or targeted to Consumer Price Index (CPI) inflation. Additional concern for monetary policy in an open economy causes a partial offset to its reaction on domestic output price inflation that weakens its effect on the real debt burden. To minimize economic fluctuations, policy makers should mute the role of output stabilization for monetary policy, and set minimum feedback on debt that is compatible with the degree of counter-cyclical fiscal policy. Substantially active response to inflation is satisfactory for monetary policy with CPI inflation targeting. The third essay empirically presents monetary and fiscal policy interactions in Thailand's SVECM suggested by a theoretical DSGE model developed from the previous essays. This essay shows that the DSGE-SVECM model can be supported by Thai data. A shock to monetary policy is effective with a lag. Government spending policy is also effective with a lag and some crowding-out effects on output. An adverse shock in tax policy unexpectedly stimulates the economy, indicating room for enhancing economic growth by relaxing revenue constraint. Monetary policy is mainly implemented to correct a consequence of a fiscal shock on inflation (and also the domestic and foreign shocks), while fiscal policy appears to counter a consequence of the monetary policy shock on output.

Download or read book Essays on Optimal Monetary and Fiscal Policy in Dynamic Economies written by Arturo Antón and published by . This book was released on 2002 with total page 224 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Fiscal Policy and International Economics written by Tannous Kass-Hanna and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis tackles the transmission of fiscal policy, with a focus on noisy news and its cross-border spillovers. It is composed of four chapters: In the first chapter, I provide an analytical characterization of the effects of noisy news shocks on the transmission of fiscal policy. Using a small-scale Dynamic Stochastic General Equilibrium (DSGE) model with capital accumulation and endogenous labor supply, this chapter shows how aggregate noise dampens the propagation of anticipated fiscal policy over the business cycle, thus reducing the fiscal multiplier. In the second chapter, I investigate the cross-border spillovers of fiscal stimuli policies - as conducted in the aftermath of the Great Recession - using a two-country New Keynesian DSGE model. Fiscal policy is assumed to be noisy: private agents receive an idiosyncratic noisy signal about future government spending shocks. This characterization of the model allows for the dispersion of individuals' expectations and captures one of the components of fiscal policy uncertainty. This chapter also shows a method for identifying the relevance of noise within fiscal policy news, and computes the average level of noise using the Survey of Professional Forecasters (SPF) dataset. By comparing the model simulations under the case of full information with that under noisy fiscal policy, this chapter illustrates how noise considerably weakens the international spillovers of fiscal policy. The third chapter tackles the domestic and cross-border quantitative effects of fiscal policy within a monetary union by building a two-country Heterogeneous Agents New-Keynesian (HANK) model in order to quantify the internal and external spillovers of fiscal policy on growth and inequality. Using the Household Finance and Consumption Survey (HFCS) data for Germany and the rest of Euro area, the model is calibrated to match wealth and income distributions. As a policy experiment, I take the case of the fiscal devaluation, that attempts to mimic competitive exchange rate devaluation. The results suggest that specific country policy has non-negligible impact on other country wealth distribution. Inequality transmits through two channels: (i) prices, which affect the household consumption level and split between foreign and home goods and, (ii) the interest rate on bonds, whose any change affects all the members in the monetary union. Finally, this chapter sheds the light on the importance of introducing heterogeneity at the international level in understanding the complex transmission of fiscal policy. In the final chapter, I augment a dynamic labor market general equilibrium model with search and matching frictions in the public and private sectors to include components of government spending: public wage bills, public investment, and transfers. The model elucidates the interactions between public and private sectors, and have numerous policy implications. I also conduct model simulations that show how a policy mix decreasing public employment and increasing public investment can boost the private sector and increase fiscal space in the long run.

Download or read book Three Essays in Macroeconomics of Fiscal and Monetary Policies written by and published by . This book was released on 2015 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Macroeconomic Policies and Redistribution written by Karen Davtyan and published by . This book was released on 2016 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: "The general objective of the doctoral thesis is to evaluate the distributive effects of macroeconomic policies. In particular, the thesis assesses the distributional impact of fiscal policy, conventional and unconventional monetary policies. The distributive effect of fiscal policy is examined by analyzing the interrelations among economic growth, income inequality, and fiscal performance based on the evidence from the Anglo-Saxon countries. These interrelations are analyzed jointly in a system by examining also transmission channels among them. All the variables are regarded as endogenous within the framework of the structural vector autoregression methodology. This allows exploring dynamic interactions among the variables and feedback effects on each other through impulse response functions. In addition, the thesis provides new evidence on interrelations among economic growth, income inequality, and fiscal performance by employing the longest possible consistently measured data on income inequality on a country basis. The obtained results show that there are differences in the obtained results for the countries. Particularly, income inequality has negative effect on economic growth in the case of the UK while its effect is positive in the cases of the USA and Canada. The increase in inequality worsens fiscal performance for all the countries. Government spending reduces income inequality in the UK but it raises inequality in the USA and Canada. In addition, the results also indicate that tax revenues generally raise income inequality in all the considered countries. Thus, the measures of the fiscal policy channel are important tools to consider in the design of the policies to decrease inequality. The academic literature generally views fiscal policy as a measure to address growing income inequality, which is a widespread concern nowadays. Although the income distribution could also be affected by monetary policy, the distributive effects of monetary policy have not broadly been discussed in the literature. Taking this into account, the thesis contributes to the discussion in this research area by evaluating the effect of monetary policy on income inequality. The distributional effect of monetary policy is estimated in the case of the USA, where the dynamics in income inequality has mainly been driven by the variation in the upper end of distribution since early 1980's. Consequently, the thesis uses an inequality measure that represents the whole distribution of income. To identify a monetary policy shock, the thesis employs contemporaneous identification with ex-ante identified monetary policy shocks as well as log run identification. In particular, a cointegration relation has been determined among the considered variables and the vector error correction methodology has been applied for the identification of the monetary policy shock. The obtained results indicate that contractionary monetary policy decreases the overall income inequality in the country. These results could have important implications for the design of policies to reduce income inequality by giving more weight to monetary policy. In the wake of the global financial crisis, central banks have generally begun to implement unconventional monetary policy together with conventional policy measures. There are already numerous studies on the impact of unconventional monetary policy measures on financial market as well as on their macroeconomic effect. However, the distributive effect of unconventional monetary policy has not essentially been examined yet. The thesis fills this gap by evaluating the distributive impact of unconventional monetary policy in comparison with the distributional effect of conventional monetary policy. The distributional effects of conventional and unconventional monetary policies are evaluated for the USA. The distributive impact of conventional monetary policy is explored through contractionary policy shocks. At the same time, the distributional effect of unconventional monetary policy is studied via expansionary policy shocks. The obtained results indicate that conventional monetary policy reduces income inequality while unconventional monetary policy raises it. In particular, the distributive impact of conventional monetary policy is stronger. The results also show that the both conventional and unconventional monetary policies significantly affect the upper part of income distribution. While conventional monetary policy does not significantly affect the lower part of income distribution, unconventional monetary policy has still a significant impact on it. In addition, the implemented variance decomposition analysis assesses the relative importance of conventional and unconventional monetary policy shocks in the variation of Gini index of income inequality. The obtained results indicate that the unconventional monetary policy shock explains the higher share of the variation in Gini index than the conventional monetary policy shock."--TDX.

Download or read book Essays on Macroeconomic Policy written by Rana Sajedi and published by . This book was released on 2016 with total page 336 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis looks at the interactions between fiscal, monetary and structural policies along three dimensions. The first paper looks at the dynamic effects of structural reforms when monetary policy is constrained. Structural reforms entail short run output costs that can be o set by a demand expansion. When monetary policy cannot carry out this short run expansion, there is a role for fiscal policy. In this case, reforms imply a fiscal cost in the short run, which can be justified by a long run improvement in public finances. This paper quantifies the short run costs and long run benefits of potential reforms in Europe. Results show that output losses from reforms can be fully o set with a modest fiscal stimulus. While for product market reforms this cost is justified by the long run fiscal gains, labour market reforms alone do not provide a sufficient boost to long run tax revenues. The second paper looks at the transmission of fisscal policy in an economy characterised by tax evasion and corruption. Cross-country evidence highlights the importance of these features in determining fiscal multipliers, and VAR evidence suggests that spending cuts reduce tax evasion, while tax hikes increase it. In a model with an underground sector, spending cuts reallocate production towards the formal sector, thus reducing tax evasion. Tax hikes increase incentives to produce in the less productive informal sector, implying higher output losses. Embezzlement of public revenues further amplifies these losses by requiring larger tax hikes to reduce debt. The model corroborates the evidence of increased levels of tax evasion during recent fiscal consolidations in southern Europe. The final paper compares price-based and quantity-based fiscal adjustments when in action is low. Focusing on the public wage bill, this translates to fiscal consolidation through cuts to public wages or public employment. In both cases, low inflation eliminates the expansionary e ects of the consolidation for the private sector. The drag in economic activity is substantially amplified, with increased debt-to-GDP levels during the consolidation.

Download or read book Essays in Macroeconomic Theory written by Antoine Camous and published by . This book was released on 2015 with total page 114 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis investigates the design of appropriate institutions to ensure the good conduct of fiscal and monetary policy. The three chapters develop theoretical frameworks to address the time-inconsistency of policy plans or prevent the occurrence of self-fulfilling prophecies. Time-inconsistency refers to a situation where preferences over policy change over time. Optimal policy plans are not credible, since agents anticipate the implementation of another policy in the future. This issue is particularly pervasive to monetary policy, since nominal quantities (price level, interest rates, etc.) are very sensitive to expected policies, but predetermined to actual policy choices. The first chapter investigates how fiscal policy can mitigate the inflation bias of monetary policy in an economy with heterogeneous agents. Whenever there is a desire for redistribution, progressive fiscal helps to implement a policy mix less biased toward inflation. Importantly, even the richest supports some fiscal progressivity, since over their life cycle, they benefit from a more balanced policy-mix. A self-fulfilling prophecy, or coordination failure, refers to a situation where a more desirable economic outcome could be reached, but fail to be, by the only effect of pessimistic expectations. Self-fulfilling debt crises are a classical example: pessimistic investors bid down the price of debt, which increases the likelihood of default, which in turn justifies the initial decrease in price. The second chapter, co-authored with Russell Cooper, asks whether monetary policy can deter self-fulfilling debt crises. The analysis shows how a counter-cyclical inflation policy with commitment is effective in doing so. Importantly, it can be implemented without endangering the primary objective of monetary policy, to deliver an inflation target for instance. The third chapter, co-authored with Andrew Gimber, revisits the classic Laffer curve coordination failure: taxes could be low, but they are high because agents anticipate high tax rates. In a dynamic environment with debt issuance, the multiplicity of equilibria critically depends on inherited debt. At high levels of public debt, fiscal policy is pro-cyclical: taxes increase when output decreases, and self-fulfilling fiscal crisis can occur. Overall, this chapter sheds light on the perils of high level of public debt.

Download or read book Three Essays on Monetary and Fiscal Policy written by Ruoyun Mao and published by . This book was released on 2020 with total page 185 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dissertation consists of three essays studying the effects of monetary and fiscal policy. The first chapter, ''Policy Uncertainty and Government Spending Effects'' (joint with Shu-Chun Yang), studies government spending multipliers in a low nominal interest rate environment. Using a fully nonlinear New Keynesian model, this chapter shows government spending multipliers can decrease when 1) the initial debt-to-GDP ratio is higher, 2) the tax rate is higher, 3) debt maturity is longer, and 4) monetary policy is more responsive to inflation. When monetary and fiscal policy regimes can switch, policy uncertainty also reduces spending multipliers. If higher inflation induces a rising probability of switching to a regime where monetary policy actively controls inflation and fiscal policy raises future taxes to stabilize government debt, the multipliers can fall much below unity.The second chapter is a joint work with Zhao Han and Xiaohan Ma and studies how dispersed information impacts inflation, inflation expectations, and the Phillips curve by analytically solving a price-setting problem with nominal rigidity and informational frictions. The analytical representations enable us to recover the underlying parameters with data from the Survey of Professional Forecasters (SPF) and quantify the effects of dispersed information. The estimation results show dispersed information plays an important role in generating persistent inflation forecast errors and non-zero nowcast errors, as observed in the SPF data, but the effects of higher-order expectations on the Phillips curve are quantitatively small.The last chapter derives the optimal monetary policy when firms only have limited capacity to process information. The result shows marginal cost of attention is the key to determining the trade-off between the central bank's dual mandates. When the marginal cost is low, monetary policy aiming at stabilizing the output gap attracts attention from the private sector and generates inefficient price dispersion; Increasing the marginal cost of attention can eliminate the trade-off. A comparison between a rule-based policy and a discretionary policy confirms welfare gain from commitment. Firms pay extra attention to the policy signal when it is discretionary, which generates more price dispersion and harms welfare.

Download or read book Essays on the Effects of Monetary Policy written by Kerstin Hallsten and published by . This book was released on 1999 with total page 111 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Effectiveness of Fiscal Policy in Stimulating Economic Activity written by Richard Hemming and published by International Monetary Fund. This book was released on 2002-12 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the theoretical and empirical literature on the effectiveness of fiscal policy. The focus is on the size of fiscal multipliers, and on the possibility that multipliers can turn negative (i.e., that fiscal contractions can be expansionary). The paper concludes that fiscal multipliers are overwhelmingly positive but small. However, there is some evidence of negative fiscal multipliers.

Download or read book Essays in International Macroeconomics written by Xuan Liu and published by . This book was released on 2007 with total page 174 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays in international macroeconomics. The first essay shows that optimal fiscal and monetary policy is time consistent in a standard small open economy. Further, there exist many maturity structures of public debt capable of rendering the optimal policy time consistent. This result is in sharp contrast with that obtained in the context of closed-economy models. In the closed economy, the time consistency of optimal monetary and fiscal policy imposes severe restrictions on public debt in the form of a unique term structure of public debt that governments can leave to their successors at each point in time. The time consistent result is robust: optimal policy is time consistent when both real and nominal bonds have finite horizons. While in a closed economy, governments must have both nominal and real bonds, and have at least real bonds over an infinite horizon to render optimal policy time consistent.

Download or read book Essays on Fiscal and Monetary Policy written by Alfredo Mier y Teran and published by . This book was released on 2014 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt: The three chapters of this dissertation investigate how micro level phenomena affect aggregate outcomes and challenge basic fiscal and monetary principles. In particular, I analyze how these phenomena affect the transmission mechanisms and outcomes of specific fiscal and monetary policies in emerging markets. In Chapter 1, I investigate the transmission of monetary policy to retail interest rates using a novel transaction-level data set that includes all corporate loans of every commercial bank in Mexico from 2005 to 2010. In particular, I analyze the speed and completeness of the pass-through of the monetary policy rate to bank lending rates, and provide evidence on the importance of bank competition to explain heterogeneity in the way banks react to monetary policy impulses along the business cycle. For this purpose, I develop a simple model of the banking firm and test its implications using dynamic panel data methods. I find that: (1) interest rate pass-through is sluggish and incomplete; (2) the degree of bank competition is positively correlated with the completeness of the interest rate pass-through; and (3) interest rate pass-through is asymmetric: lending rates adjust less in the case of monetary policy easing than in the case of tightening. Chapter 2 draws from a district-level database to investigate the local impact on socioeconomic outcomes of mining-related revenue windfalls in Peru, which have grown almost twentyfold in the last two decades. I find evidence that improvements in average living standards are related to the mining activity but independent from fiscal revenue windfalls at the district level, where inefficiencies in the use of public funds may be accounting for the disconnect between fiscal revenues and socioeconomic outcomes. In Chapter 3, I investigate how the fiscal institutional framework has given rise to deficit and procyclical biases in the case of Mexico, and evaluate how the use of alternative fiscal rules may affect these biases. For the latter, I conduct a series of simulations using an unrestricted VAR model that allows me to evaluate the effect on fiscal outcomes of a constellation of shocks calibrated to match Mexican historical macro-data. I find that Mexico's fiscal framework allows the conduct of a countercyclical fiscal policy during economic recessions; however, it does not contemplate a mechanism to generate buffers during economic expansions. Thus, fiscal policy is oftentimes procyclical and has a built-in deficit bias. Moreover, I find that a budget balance rule with an expenditure cap is able to mimic the results of a rule based on a cyclically adjusted balance in terms of reducing the procyclical and deficit biases, with the advantage of not having to rely on an autonomous fiscal agency, which is usually absent under weak institutional frameworks.

Download or read book Fiscal Policy and Long Term Growth written by International Monetary Fund and published by International Monetary Fund. This book was released on 2015-04-20 with total page 257 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores how fiscal policy can affect medium- to long-term growth. It identifies the main channels through which fiscal policy can influence growth and distills practical lessons for policymakers. The particular mix of policy measures, however, will depend on country-specific conditions, capacities, and preferences. The paper draws on the Fund’s extensive technical assistance on fiscal reforms as well as several analytical studies, including a novel approach for country studies, a statistical analysis of growth accelerations following fiscal reforms, and simulations of an endogenous growth model.