Fiscal Limits in Advanced Economies*

Leeper, Eric M.; Walker, Todd B.

doi:10.1111/j.1759-3441.2011.00111.x

Cited by 27 publications

(30 citation statements)

References 80 publications

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“…There are two pure strategy Nash equilibria, each preferred 11 Note that P F can also be interpreted as an intertemporarily balanced budget (including factors such as the government's implicit guarantees for …nancial institutions). This is in line with Leeper and Walker (2011) who highlight 'the importance of building in the possibility of adopting a policy rule that incorporates a balanced budget.' by a di¤erent player.…”

Section: ; 3 Game Of Chickensupporting

confidence: 68%

“…As stated above, we are however interested in the aftermath of an adverse shock such as the 2010-2014 period, in which uncertainty about the recovery and about the optimal monetary and …scal policy mix becomes a major issue. 10 Interested readers can see an earlier version, Libich, Nguyen, and Stehlík (2012), which o¤ers a simple macro setup featuring standard quadratic policy preferences and an intertemporal budget constraint of the government based on Leeper and Walker (2011). It shows how the game theoretic representation of (1) including the payo¤s can be derived from the macro model.…”

Section: The Policy Interactions Under Incomplete Informationmentioning

confidence: 99%

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Monetary exit and fiscal spillovers

Libich

Nguyen

Stehlı́k

2015

European Journal of Political Economy

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The aftermath of the Global …nancial crisis has seen two types of monetary policy concerns. Some economists (e.g. Paul Krugman) worry primarily about possible de‡ation caused by a secular stagnation. In contrast, others (e.g. John Taylor) worry about excessively high in ‡ation caused by quantitative easing and monetization of …scal imbalances. We show that some countries should fear both -de ‡ation in the short term and high in ‡ation in the long term -whereas some countries are unlikely to experience either. This is done in a game theoretic framework with dynamic leadership (stochastic revisions of actions). Such framework enables us to examine strategic monetary-…scal interactions as well as policymakers'incomplete information about the economic recovery (such as during 2010-2014). Our empirical section then quanti…es indices of monetary and …scal leadership for high-income countries to assess their de ‡ationary/in ‡ationary prospects. It is shown, for example, that undesirable departures from price stability, both in the short term and long term, are much more likely in the United States and Japan than in Australia or New Zealand.

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Section: ; 3 Game Of Chickensupporting

confidence: 68%

Section: The Policy Interactions Under Incomplete Informationmentioning

confidence: 99%

Monetary exit and fiscal spillovers

Libich

Nguyen

Stehlı́k

2015

European Journal of Political Economy

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“…These scenarios are by no means exhaustive, but serve to illustrate the extent to which monetary and fiscal policy must coordinate in order to effectively control the price level. One example draws on Davig, Leeper, and Walker (2010), Leeper (2011), and Leeper and Walker (2011) and assumes Regime M is operative until a fiscal limit is hit at date T . A fiscal limit is the point at which tax rates, either through political or economic constraints, can no longer adjust to passively raise future tax revenues.…”

Section: How Fiscal Policy Can Undermine Monetary Control Of Inflationmentioning

confidence: 99%

Perceptions and Misperceptions of Fiscal Inflation

Leeper

Walker

2012

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The Great Recession and worldwide financial crisis have exploded fiscal imbalances and brought fiscal policy and inflation to the forefront of policy concerns. Those concerns will only grow as aging populations increase demands on government expenditures in coming decades. It is widely perceived that fiscal policy is inflationary if and only if it leads the central bank to print new currency to monetize deficits. Monetization can be inflationary. But it is a misperception that this is the only channel for fiscal inflations. Nominal bonds, the predominant form of government debt in advanced economies, derive their value from expected future nominal primary surpluses and money creation; changes in the price level can align the market value of debt to its expected real backing. This introduces a fresh channel, not requiring explicit monetization, through which fiscal deficits directly affect inflation. The paper describes various ways in which fiscal policy can directly affect inflation and explains why these fiscal effects are difficult to detect in time series data.

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“…12 For the probabilistic voting model, see Perssion and Tabellini (2001, Ch.3) among others. 13 Aghion and Bolton (1990) (19) in the unique Markov perfect equilibrium, where we assume that γ t > βθ t+1 for internal solution.…”

Section: Politico-economic Equilibriummentioning

confidence: 99%

Aging and Deflation from a Fiscal Perspective

Katagiri¹,

Konishi²,

Ueda³

2014

gwp

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Negative correlations between inflation and demographic aging were observed across developed nations recently. To understand the phenomenon from a politico-economic perspective, we embed the fiscal theory of the price level into an overlapping-generations model. In the model, successive short-lived governments choose income tax rates and bond issues considering the political influence of existing generations and the policy response of future governments. The model sheds new light on the traditional debate about the burden of national debt. Because of price adjustments, the accumulation of government debt does not become a burden on future generations. Our analysis reveals that the effects of aging depend on its causes. Aging is deflationary when caused by an increase in longevity but inflationary when caused by a decline in birth rate. Numerical simulation shows that aging over the past 40 years in Japan generated deflation of about 0.6 percentage points annually.

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Fiscal Limits in Advanced Economies*

Cited by 27 publications

References 80 publications

Monetary exit and fiscal spillovers

Monetary exit and fiscal spillovers

Perceptions and Misperceptions of Fiscal Inflation

Aging and Deflation from a Fiscal Perspective

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