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Dealing with a liquidity trap when government debt matters: optimal time-consistent monetary and fiscal policy

Burgert, Matthias; Schmidt, Sebastian - 2013

How does the need to preserve government debt sustainability affect the optimal monetary and fiscal policy response to a liquidity trap? To provide an answer, we employ a small stochastic New Keynesian model with a zero bound on nominal interest rates and characterize optimal time-consistent...

Persistent link: https://www.econbiz.de/10011605667

Fiscal activism and the zero nominal interest rate bound

Schmidt, Sebastian - 2014

I show that the zero nominal interest rate bound may render it desirable for society to appoint a fiscally activist policy-maker who cares less about the stabilisation of government spending relative to inflation and output gap stabilisation than the private sector does. I work with a simple New...

Persistent link: https://www.econbiz.de/10011605698

Expectations-driven liquidity traps: Implications for monetary and fiscal policy

Nakata, Taisuke; Schmidt, Sebastian - 2019

We study optimal monetary and fiscal policy in a New Keynesian model where occasional declines in agents' confidence can give rise to persistent liquidity trap episodes. Unlike in the case of fundamental-driven liquidity traps, there is no straightforward recipe for mitigating the welfare costs...

Persistent link: https://www.econbiz.de/10012142148

Quantifying and sustaining welfare gains from monetary commitment

Levine, Paul; McAdam, Peter; Pearlman, Joseph G. - 2007

The objectives of this paper are: first, to quantify the stabilization welfare gains from commitment; second, to … examine how commitment to an optimal rule can be sustained as an equilibrium and third, to find a simple interest rate rule … that closely approximates the optimal commitment one. We utilize an influential empirical micro-founded DSGE model, the …

Persistent link: https://www.econbiz.de/10011604755

Dynamic fiscal limits and monetary-fiscal policy interactions

Battistini, Niccolò; Callegari, Giovanni; Zavalloni, Luca - 2019

expands the fiscal margin, especially if coupled with a commitment to a more active monetary policy during normal times. …

Persistent link: https://www.econbiz.de/10012142112

Monetary and fiscal policy interactions in a micro-founded model of a monetary union

Beetsma, Roel; Jensen, Henrik - 2002

investigate to what extent these rules can approximate the optimal solution under commitment. …

Persistent link: https://www.econbiz.de/10011604212

Anticipated Ramsey reforms and the uniform taxation principle: the role of international financial markets

Schmitt-Grohé, Stephanie; Uribe, Martín - 2003

This paper studies the role of asset-market completeness for the properties of optimal fiscal and monetary policy. A suitable framework for this purpose is the small open economy with complete international asset markets. For in this environment changes in policy represent country-specific risk...

Persistent link: https://www.econbiz.de/10011604256

Optimal monetary and fiscal policy: a linear-quadratic approach

Benigno, Pierpaolo; Woodford, Michael - 2004

We propose an integrated treatment of the problems of optimal monetary and fiscal policy, for an economy in which prices are sticky and the only available sources of government revenue are distorting taxes. Our linear-quadratic approach allows us to nest both conventional analyses of optimal...

Persistent link: https://www.econbiz.de/10011604391

Optimal fiscal and monetary policy in a medium-scale macroeconomic model

Schmitt-Grohé, Stephanie; Uribe, Martín - 2006

In this paper, we study Ramsey-optimal fiscal and monetary policy in a mediumscale model of the U.S. business cycle. The model features a rich array of real and nominal rigidities that have been identified in the recent empirical literature as salient in explaining observed aggregate...

Persistent link: https://www.econbiz.de/10011604658

Designing QE in a fiscally sound monetary union

Bletzinger, Tilman; von Thadden, Leopold - 2018

This paper develops a tractable model of a monetary union with a sound fiscal governance structure and shows how in such environment the design of monetary policy above and at the lower bound constraint on short-term interest rates can be linked to well-known findings from the literature dealing...

Persistent link: https://www.econbiz.de/10011916860