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The paper analyzes Chile's structural balance fiscal rule in the face of copper price shocks originating in foreign copper demand. It uses a version of the IMF's Global Integrated Monetary and Fiscal Model (GIMF) that includes a copper sector. Two results are obtained. First, Chile's current fiscal rule performs well if the policymaker puts a small weight on output volatility (relative to inflation volatility) in his/her objective function. A more aggressive countercyclical fiscal rule can attain lower output volatility, but there is a trade-off with (somewhat) higher inflation volatility and (much) higher volatility of fiscal variables. Second, given its current stock of government assets, Chile's adoption of a 0.5% surplus target starting in 2008 is desirable from a business cycle perspective. This is because the earlier 1% target would have required significant further asset accumulation that could only have been accomplished at the expense of greater volatility in fiscal instruments and therefore in GDP.

Political Science --- Law, Politics & Government --- Public Finance --- Fiscal policy --- Finance, Public --- Cameralistics --- Public finance --- Tax policy --- Taxation --- Government policy --- Currency question --- Economic policy --- Public finances --- Investments: Metals --- Inflation --- Macroeconomics --- Metals and Metal Products --- Cement --- Glass --- Ceramics --- Macroeconomics: Consumption --- Saving --- Wealth --- Labor Economics: General --- Price Level --- Deflation --- Taxation, Subsidies, and Revenue: General --- Investment & securities --- Labour --- income economics --- Public finance & taxation --- Copper --- Consumption --- Labor --- Revenue administration --- Economics --- Labor economics --- Prices --- Revenue --- Chile

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This is the second chapter of a forthcoming monograph entitled "On Implementing Full-Fledged Inflation-Targeting Regimes: Saying What You Do and Doing What You Say." We begin by discussing the costs of inflation, including their role in generating boom-bust cycles. Following a general discussion of the need for a nominal anchor, we describe a specific type of monetary anchor, the inflation-targeting regime, and its two key intellectual roots-the absence of long-run trade-offs and the time-inconsistency problem. We conclude by providing a brief introduction to the way in which inflation targeting works.

Finance --- Business & Economics --- Money --- Inflation (Finance) --- Anti-inflationary policies. --- Antiinflationary policies --- Government policy --- Economic policy --- Price regulation --- Natural rate of unemployment --- Foreign Exchange --- Inflation --- Money and Monetary Policy --- Economic Theory --- Production and Operations Management --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- Price Level --- Deflation --- Central Banks and Their Policies --- Monetary Policy --- Macroeconomics: Production --- Agriculture: Aggregate Supply and Demand Analysis --- Prices --- Macroeconomics --- Monetary economics --- Currency --- Foreign exchange --- Economic theory & philosophy --- Inflation targeting --- Conventional peg --- Output gap --- Supply shocks --- Monetary policy --- Production --- Economic theory --- Supply and demand --- United Kingdom

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This paper examines the macroeconomic implications of life-cycle and dynastic saving behavior for closed and small, open economies. Using an extended version of Blanchard’s overlapping agents model, the analytical framework nests these two competing views, treating agents as either dynastic households or disconnected generations. Calibrating the life-cycle variant using empirical age-earnings profiles, the analysis compares the long-run effects of fiscal policy shocks under both perspectives. The results quantify the implications of life-cycle considerations for the effects of deficit finance on real interest rates and the capital stock or net foreign assets.

Banks and Banking --- Macroeconomics --- Public Finance --- Macroeconomics: Consumption --- Saving --- Wealth --- Forecasting and Simulation: Models and Applications --- Fiscal Policy --- Fiscal Policies and Behavior of Economic Agents: Household --- Aggregate Factor Income Distribution --- Debt --- Debt Management --- Sovereign Debt --- Labor Economics: General --- Interest Rates: Determination, Term Structure, and Effects --- Public finance & taxation --- Labour --- income economics --- Finance --- Income --- Consumption --- Public debt --- Labor --- Real interest rates --- National accounts --- Financial services --- Economics --- Debts, Public --- Labor economics --- Interest rates --- United States

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This paper provides a quantitative exploration of international spillovers of macroeconomic shocks among the major industrial economies. The particular topical example analyzed here concerns the possible effects on the industrial economies of adverse shocks to the current U.S. economic expansion. The potential spillover effects of U.S. shocks to other industrial economies are found to be quite large. Extant economic conditions, particularly the low levels of nominal interest rates and the consequent possibility of liquidity traps in countries such as Japan, could significantly magnify these spillover effects.

Exports and Imports --- Foreign Exchange --- Inflation --- Labor --- Money and Monetary Policy --- Business Fluctuations --- Cycles --- Prices, Business Fluctuations, and Cycles: Forecasting and Simulation --- International Policy Coordination and Transmission --- Price Level --- Deflation --- Interest Rates: Determination, Term Structure, and Effects --- Current Account Adjustment --- Short-term Capital Movements --- Unemployment: Models, Duration, Incidence, and Job Search --- Macroeconomics --- Currency --- Foreign exchange --- Monetary economics --- International economics --- Labour --- income economics --- Nominal effective exchange rate --- Interest rate floor --- Current account balance --- Unemployment rate --- Prices --- Monetary policy --- Balance of payments --- Interest rates --- Unemployment --- United States