Jointly Optimal Monetary and Fiscal Policy Rules under Borrowing Constraints

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

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Year of publication:	2009
Authors:	Kumhof, Michael
Other Persons:	Bi, Huixin (contributor)
Publisher:	Washington : International Monetary Fund
Subject:	Finanzpolitik \| Fiscal policy \| Theorie \| Theory \| Geldpolitik \| Monetary policy \| Regelbindung versus Diskretion \| Rules versus discretion \| Liquiditätsbeschränkung \| Liquidity constraint

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Extent:	Online-Ressource (41 p)
Series:	IMF Working Papers IMF working paper ; WP/09/286
Type of publication:	Book / Working Paper
Language:	English
Notes:	Description based upon print version of record Contents; I. Introduction; II. The Model; A. Infinitely-Lived Households; B. Borrowing-Constrained Households; C. Firms; D. Government; 1. Monetary Policy; 2. Budget Constraint; 3. Fiscal Policy; E. Competitive Equilibrium; F. Aggregate Welfare; III. Calibration; IV. Results; A. Impulse Responses; 1. Fiscal Policy Rule Parameters; 2. Monetary Policy Rule Parameters; B. Welfare under Different Shocks; C. Welfare and Volatility; 1. Welfare and Volatility of Policy Instruments; 2. Efficiency Frontiers; 3. Alternative Fiscal Instruments; 4. Alternative Fiscal Rules 5. Comparison with the Canonical Infinite-Horizon CaseV. Conclusion; References; Figures; 1. Positive Technology Shock, Different dtax; 2. Negative Investment Shock, Different dtax; 3. Positive Consumption Shock, Different dtax; 4. Positive Technology Shock, Different dpie; 5. Positive Technology Shock, Different dpie, No Liquidity-Constrained Agents .; 6. Positive Technology Shock, Different di; 7. Welfare - Technology Shock; 8. Welfare - Investment Shock; 9. Welfare - Consumption Shock; 10. Welfare - All Shocks; 11. Welfare and Policy Instrument Volatility 12. Welfare-Fiscal Volatility Efficiency Frontier13. Welfare Comparison across Fiscal Instruments; 14. 100 Percent Infinitely-Lived Agents - Welfare - 2 Dimensional; 15. 100 Percent Infinitely-Lived Agents - Welfare - 1 Dimensional; Tables; 1. Moments of the Data and the Model
ISBN:	978-1-4518-7431-0 ; 978-1-4527-2886-5 ; 978-1-4518-7431-0
Source:	ECONIS - Online Catalogue of the ZBW

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