Interest rate policy, debt, and indeterminacy with distortionary taxation

Linnemann, Ludger

doi:10.1016/j.jedc.2005.02.003

Cited by 27 publications

(46 citation statements)

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“…25 Exploiting this special feature, Dupor offers a particularly transparent discussion of why the Taylor principle has no bite if there exists a contemporaneous link between the real interest rate and the return on physical capital in continuous time models. 26 However, the failure of the Taylor principle in models with capital stock dynamics is not a generic feature of discrete time models, as shown by Carlstrom and Fuerst (2005). 27 Intuitively, discrete time models allow for a natural distinction between the marginal productivity of 'today' and of the 'future'.…”

Section: Endogenous Labour Supply Of Ricardian Consumersmentioning

confidence: 99%

“…Because of this feature, supply-side patterns are less rich and none of the studies reports the existence of thresholds levels of debt which lead to qualitative changes in the dynamic properties of the economy, as established in this paper. Using standard Ramsey-type set-ups, Edge and Rudd (2002) and Linnemann (2006) consider New Keynesian economies in which fiscal policy is non-neutral because of distortionary taxation. Both papers show that this modification, conditional on the nature and the degree of the distortion, changes the benchmark of the Taylor principle, but there is no explicit reference to the role of debt.…”

Section: Introductionmentioning

confidence: 99%

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Monetary and fiscal policy interactions in a New Keynesian model with capital accumulation and non-Ricardian consumers

Leith

Thadden

2008

Journal of Economic Theory

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Terms of use: Documents in WO R K I N G PA P E R S E R I E SN O 6 4 9 / J U N E 2 0 0 6 MONETARY AND FISCAL POLICY INTERACTIONS IN A NEW KEYNESIAN MODEL WITH CAPITAL ACCUMULATION AND NON-RICARDIAN CONSUMERS and Leopold von Thadden by Campbell LeithIn 2006 all ECB publications will feature a motif taken from the €5 banknote. WO R K I N G PA P E R S E R I E S N O 6 4 9 / J U N E 2 0 0 6This paper can be downloaded without charge from http://www.ecb.int or from the Social Science Research Network electronic library at http://ssrn.com/abstract_id=908620 policy" (Helsinki, 2004), and at the annual meetings of the Econometric Society (Madrid, 2004) C O N T E N T S Abstract 4Non-technical summary 5

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Section: Endogenous Labour Supply Of Ricardian Consumersmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Monetary and fiscal policy interactions in a New Keynesian model with capital accumulation and non-Ricardian consumers

Leith

Thadden

2008

Journal of Economic Theory

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“…To explicitly model such processes in a full-fledged political economy framework is an attractive extension, yet beyond the scope of the present paper. Following Linnemann (2006) and Collignon (2012), we assume that the government obeys the following rule:…”

Section: Specification Of Policy Rulesmentioning

confidence: 99%

Fiscal and Monetary Policy Coordination, Macroeconomic Stability, and Sovereign Risk

Bonam

Lukkezen

2014

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractIn standard macroeconomic models, debt sustainability and price level determinacy are achieved when fiscal policy avoids explosive debt and monetary policy controls inflation, irrespective of the relative strengths of each policy stance. We examine how these policy requirements for equilibrium stability and determinacy change in the presence of sovereign risk. An increase in sovereign risk reduces lender's willingness to hold government debt and raises consumption and inflation. Therefore, inflation and debt dynamics are determined jointly. To ensure stable macroeconomic conditions, both the fiscal and monetary stance must shift to offset debt sustainability concerns. We find that the adoption of a deficit target helps alleviate such concerns and raises the scope for macroeconomic stability.JEL Classification: E52, E62, E63

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“…In this scenario C. and Thadden (2008) prove not only that steady-state government debt becomes a crucial state variable for determinacy of local equilibrium and its dynamics, but also that its level is important: the required degree of fiscal discipline is an increasing (but yet discontinuos) function of the debt level when monetary policy is to become more active 3 . Other contributions have broken Ricardian equivalence by introducing distortionary taxation, and have looked at the non-trivial interactions with monetary policy (Schmitt-Grohé andUribe (2004c, 2007), Edge and Rudd (2002), Linnemann (2006)). Our paper follows this latter approach, insofar as we introduce (multiple) distortionary taxation and implement a welfare analysis via second-order perturbation methods.…”

Section: Introductionmentioning

confidence: 99%

A welfare perspective on the fiscal–monetary policy mix: The role of alternative fiscal instruments

Marattin

Marzo

Zagaglia

2011

Journal of Policy Modeling

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The need of fiscal consolidation is likely to dominate the policy agenda in the next decade; starting from statistical evidence on the conduct of fiscal policy in the EMU area over the last decade, this paper addresses the optimality of alternative fiscal consolidation strategies. We explore the welfare properties. In this paper we explore the welfare properties of debt-targeting fiscal policy implemented through, alternatively, distortionary taxation on consumption, labour and capital income or productive and wasteful government expenditure. We build a general equilibrium model with various distortions in order to evaluate the welfare ranking of alternative fiscal policy configurations under different monetary policy regimes. Our results show the welfare superiority of fiscal adjustments based on productive government expenditure, whereas the use of a capital income tax rate as fiscal instruments yields the highest welfare loss. * Marattin: Department of Economics, Università di Bologna; luigi.marattin@unibo.it. Marzo: Department of Economics, Università di Bologna; massimiliano.marzo@unibo.it. Zagaglia: Modelling Unit, Sveriges Riksbank; paolo.zagaglia@riksbank.se. The views expressed herein are those of the authors only and should not be attributed to the members of the Executive Board of Sveriges Riksbank.

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Interest rate policy, debt, and indeterminacy with distortionary taxation

Cited by 27 publications

References 20 publications

Monetary and fiscal policy interactions in a New Keynesian model with capital accumulation and non-Ricardian consumers

Monetary and fiscal policy interactions in a New Keynesian model with capital accumulation and non-Ricardian consumers

Fiscal and Monetary Policy Coordination, Macroeconomic Stability, and Sovereign Risk

A welfare perspective on the fiscal–monetary policy mix: The role of alternative fiscal instruments

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