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Taxation --- -Government spending policy --- -Fiscal policy --- -Mathematical models --- Mathematical models --- Mathematical models
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This paper develops a multi-sector, small open economy Dynamic Stochastic General Equilibrium model, which includes the accumulation of human capital, built via public expenditures in education and health. Four possible fiscal rules are examined for total public investment in infrastructure, education, and health in the context of a sustainable resource fund: the spend-as-you-go, bird-in-hand spending; moderate front-loading, and permanent income hypothesis approaches. There are two dimensions to this exercise: the scaling effect, which describes the level of total investment, and the composition effect, which defines the structure of investment between infrastructure, education, and health. The model is applied to Kenya. For impacts on the non-resource economy, efficiency of spending, and sustainability of fiscal outcomes, the analysis finds that, although investment frontloading would bring high growth in the short term, the permanent income hypothesis approach is overall more desirable when fiscal sustainability concerns are taken into consideration. Finally, a balanced composition is the preferred structure of investment, given the permanent income hypothesis allocation of total investment over time.
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In this book David Currie and Paul Levine address a broad range of issues concerning the design and conduct of macroeconomic policy in open economies. Adopting neo-Keynesian models for which monetary and fiscal policy have short-term real effects, they analyse active stabilisation policies in both a single- and multi-country context. Questions addressed include: the merits of simple policy rules, policy design in the face of uncertainty and international policy coordination. A central feature of the book is the treatment of credibility and the effect of a policy-maker's reputation for sticking to announced policies. These considerations are integrated with coordination issues to produce a unique synthesis. The volume develops optimal control methods and dynamic game theory to handle relationships between governments and a conscious rational private sector and produces a unified, coherent approach to the subject. This book will be of interest to students and teachers of open economy macroeconomics and to professional economists interested in using macroeconomic models to design policy.
Macroeconomics --- International finance --- Economic policy --- International cooperation --- 338.22 --- -Macroeconomics --- AA / International- internationaal --- 331.31 --- 334.10 --- 339.5 --- Economics --- Economic nationalism --- Economic planning --- National planning --- State planning --- Planning --- National security --- Social policy --- Economische organisatieleer. Economisch beleid. Economische politiek --- Economisch beleid. --- Algemene economie : algemeenheden. --- Economic policy. --- Macroeconomics. --- International cooperation. --- 338.22 Economische organisatieleer. Economisch beleid. Economische politiek --- Economisch beleid --- Algemene economie : algemeenheden --- Business, Economy and Management --- Economic policy - International cooperation
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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.
Finance --- Business & Economics --- Money --- Monetary policy --- Fiscal policy --- Banks and Banking --- Macroeconomics --- Money and Monetary Policy --- Public Finance --- Fiscal Policy --- Macroeconomics: Consumption --- Saving --- Wealth --- Interest Rates: Determination, Term Structure, and Effects --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Monetary economics --- Consumption --- Fiscal rules --- Zero lower bound --- Currencies --- Economics --- Interest rates --- Chile
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The initial government debt-to-GDP ratio and the government’s commitment play a pivotal role in determining the welfare-optimal speed of fiscal consolidation in the management of a debt crisis. Under commitment, for low or moderate initial government debt-to-GPD ratios, the optimal consolidation is very slow. A faster pace is optimal when the economy starts from a high level of public debt implying high sovereign risk premia, unless these are suppressed via a bailout by official creditors. Under discretion, the cost of not being able to commit is reflected into a quick consolidation of government debt. Simple monetary-fiscal rules with passive fiscal policy, designed for an environment with “normal shocks”, perform reasonably well in mimicking the Ramsey-optimal response to one-off government debt shocks. When the government can issue also long-term bonds–under commitment–the optimal debt consolidation pace is slower than in the case of short-term bonds only, and entails an increase in the ratio between long and short-term bonds.
Debts, Public. --- Monetary policy. --- Fiscal policy. --- Tax policy --- Taxation --- Economic policy --- Finance, Public --- Monetary management --- Currency boards --- Money supply --- Debts, Government --- Government debts --- National debts --- Public debt --- Public debts --- Sovereign debt --- Debt --- Bonds --- Deficit financing --- Government policy --- Financial Risk Management --- Investments: Bonds --- Public Finance --- Monetary Policy --- Fiscal Policy --- Crisis Management --- Debt Management --- Sovereign Debt --- National Government Expenditures and Related Policies: General --- General Financial Markets: General (includes Measurement and Data) --- Public finance & taxation --- Investment & securities --- Macroeconomics --- Finance --- Expenditure --- Fiscal policy --- Debt management --- Financial institutions --- Asset and liability management --- Debts, Public --- Expenditures, Public --- United States
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We analyse the effects of a government spending expansion in a DSGE model with Mortensen-Pissarides labour market frictions, deep habits in private and public consumption, investment adjustment costs, a constant-elasticity-of-substitution (CES) production function, and adjustments in employment both at the intensive as well as the extensive margin. The combination of deep habits and CES technology is crucial. The presence of deep habits magnifies the responses of macroeconomic variables to a fiscal stimulus, while an elasticity of substitution between capital and labour in the range of available estimates allows the model to produce a scenario compatible with the observed jobless recovery.
Fiscal policy --- Labor --- Unemployment --- Joblessness --- Employment (Economic theory) --- Full employment policies --- Labor supply --- Manpower policy --- Underemployment --- Labor and laboring classes --- Manpower --- Work --- Working class --- Tax policy --- Taxation --- Economic policy --- Finance, Public --- Econometric models. --- Government policy --- Econometric models --- E-books --- Macroeconomics --- Public Finance --- Employment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Fiscal Policy --- Labor Economics: General --- National Government Expenditures and Related Policies: General --- Macroeconomics: Consumption --- Saving --- Wealth --- Unemployment: Models, Duration, Incidence, and Job Search --- Labour --- income economics --- Public finance & taxation --- Expenditure --- Fiscal stimulus --- Consumption --- National accounts --- Labor economics --- Expenditures, Public --- Economics --- United States
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