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learning about the nature of these deviations. Under constrained discretion, only short deviations occur, agents' uncertainty … about the macroeconomy remains contained, and welfare is high. However, if a deviation persists, uncertainty accelerates and … welfare declines. Announcing the future policy course raises uncertainty in the short run by revealing that active inflation …
Persistent link: https://www.econbiz.de/10011560575
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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
The existing literature on the stabilizing properties of interest-rate feedback rules has stressed the perils of linking interest rates to forecasts of future inflation. Such rules have been found to give rise to aggregate fluctuations due to self-fulfilling expectations. In response to this...
Persistent link: https://www.econbiz.de/10010263206
.ation stabilization and agents face uncertainty about the nature of these deviations. When observing a deviation, agents conduct Bayesian … prompt return to the active regime, macroeconomic uncertainty is low, welfare is high. However, if a deviation persists …, agents.beliefs start drifting, uncertainty accelerates, and welfare declines. If the duration of the deviations is announced …
Persistent link: https://www.econbiz.de/10011460672
This paper studies optimal fiscal and monetary policy under sticky product prices. The theoretical framework is a stochastic production economy without capital. The government finances an exogenous stream of purchases by levying distortionary income taxes, printing money, and issuing one-period...
Persistent link: https://www.econbiz.de/10010318338
This paper studies optimal fiscal and monetary policy
Persistent link: https://www.econbiz.de/10010318348
A growing empirical and theoretical literature argues in favor of specifying monetary policy in the form of Taylor-type interest rate feedback rules. That is, rules whereby the nominal interest rate is set as an increasing function of inflation with a slope greater than one around an intended...
Persistent link: https://www.econbiz.de/10010318350
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Persistent link: https://www.econbiz.de/10000994127