Accounting for monetary and fiscal policy effects in a simple dynamic general equilibrium model

Chang, Ming‐Jen; Liu, Mengchao

doi:10.1080/1331677x.2018.1442233

Cited by 3 publications

(2 citation statements)

References 29 publications

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“…The central bank -seeking to optimise its decisions without compromising its main goal, which is keeping prices stable without deviating from the inflation target -has to deal with constraints such as the government's decisions, economic circumstances and specific impediments affecting the implementation of a monetary policy (e.g. a rule of monetary policy) (Chang & Liu, 2018;Davig & Leeper, 2011;Dixit & Lambertini, 2000Gali & Monacelli, 2008;Leith & Wren-Lewis, 2006).…”

Section: The Game Theory Framework For Analysing Policy MIX Coordination In the Context Of A Non-cooperative Gamementioning

confidence: 99%

Combined monetary and fiscal policy: the Nash Equilibrium for the case of non-cooperative game

Stawska

Malaczewski

Szymańska

2019

Economic Research-Ekonomska Istraživanja

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The importance of the central bank and the government conducting their policies has increased recently, with more attention being given to the effectiveness of policy mix. The non-cooperative models of the monetary and fiscal game are frequently employed to study interactions between both authorities. The models assume that the authorities take into account each other's choices when making decisions. It is also important to remember when seeking equilibrium in the non-cooperative models that in the Nash Equilibrium (which is sought in this study) the parties try to come up with the best response to the opponent's decision. The aim of the paper is to present the Nash Equilibrium in a non-cooperative game between the government and the central bank using a non-cooperative model of a fiscal-monetary game (a policy-mix MODEL). This study demonstrates that in the Nash Equilibrium in the model, the budget deficit and interest rate of an EU member state depend on the exogenous data (external to the model), such as inflation target, base inflation and the Maastricht deficit limit. This study is enhanced by an analysis of the government and central bank's sensitivity to the deep parameters of economic variables.

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Section: The Game Theory Framework For Analysing Policy MIX Coordination In the Context Of A Non-cooperative Gamementioning

confidence: 99%

Combined monetary and fiscal policy: the Nash Equilibrium for the case of non-cooperative game

Stawska

Malaczewski

Szymańska

2019

Economic Research-Ekonomska Istraživanja

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“…Tervala (2008) talked about the effect of fiscal policy under the framework of NOEM and got a result that the marginal rate of substitution of private consumption and government spending are the most important reason which affects fiscal spending on the effect of welfare but it also ignores a popular issue, namely, consumption home bias. Besides, Chang and Liu (2018) construct a simple dynamic general equilibrium model to examine how the active monetary and passive fiscal policy affect interest rates and inflation rates. Cebi and Culha (2014) investigate the effects of government spending shocks on the real exchange rate and foreign trade balance in Turkey within a structural VAR framework.…”

Section: Introductionmentioning

confidence: 99%

Fiscal Policy and Macroeconomic Fluctuations in a Fixed Exchange Rate Regime

Lai

2018

Asian Economic and Financial Review

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This paper develops a model with imperfect competition and micro-foundation based on the framework of New Open Economy Macroeconomics in order to discuss government spending shock on macroeconomic fluctuations (for example, consumption, output, price, and terms of trade, etc.) under the fixed exchange rate regime and try to explain the role of consumption home bias. By way of theoretical derivation and simulation analysis, this paper discovers that without consideration of consumption home bias under the fixed exchange rate regime in the long term, government spending is positively related to domestic output but is negatively related to private sector consumption, price and terms of trade. Once you take consumption home bias into consideration like that consumers in two countries both are in favor of home goods, the relationship among government spending, consumption, output, and price will be reversed. And, in the short term government spending only will have an influence on interest rate and both of them are positive correlative. Contribution/ Originality:This study provides a detailed account of how government spending shock on macroeconomic fluctuations under the fixed exchange rate regime. We found that the role of consumption home bias affects the effects of government spending shock on macroeconomics variables in the long and short term.

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External shocks in a small open economy: an evaluation of monetary policy rules

2022

Economic Research-Ekonomska Istraživanja

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Accounting for monetary and fiscal policy effects in a simple dynamic general equilibrium model

Cited by 3 publications

References 29 publications

Combined monetary and fiscal policy: the Nash Equilibrium for the case of non-cooperative game

Combined monetary and fiscal policy: the Nash Equilibrium for the case of non-cooperative game

Fiscal Policy and Macroeconomic Fluctuations in a Fixed Exchange Rate Regime

External shocks in a small open economy: an evaluation of monetary policy rules

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