Managing Expectations and Fiscal Policy

Karantounias, Anastasios G.; Hansen, Lars Peter; Sargent, Thomas J.

doi:10.2139/ssrn.1498706

Cited by 13 publications

(10 citation statements)

References 37 publications

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“…Another line of research considers what policymakers should do when they know private agents employ robust decisionmaking, but policymakers are themselves confident about the underlying model of the economy. Examples of such analyses include Caballero and Krishnamurthy (2008) and Karantounias, Hansen, and Sargent (2009). I also abstract from work on robust policy in non-macroeconomic applications, for example treatment rules for a heterogeneous population where the effect of treatments is uncertain.…”

Section: Introductionmentioning

confidence: 99%

Robustness and Macroeconomic Policy

Barlevy

2011

Annu. Rev. Econ.

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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. Abstract This paper considers the design of macroeconomic policies in the face of uncertainty. In recent years, several economists have advocated that when policymakers are uncertain about the environment they face and find it difficult to assign precise probabilities to the alternative scenarios that may characterize this environment, they should design policies to be robust in the sense that they minimize the worstcase loss these policies could ever impose. I review and evaluate the objections cited by critics of this approach. I further argue that, contrary to what some have inferred, concern about worst-case scenarios does not always lead to policies that respond more aggressively to incoming news than the optimal policy would respond absent any uncertainty. Terms of use: Documents in EconStor may

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Section: Introductionmentioning

confidence: 99%

Robustness and Macroeconomic Policy

Barlevy

2011

Annu. Rev. Econ.

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“…As it shows, the relative volatility of the tax rate predicted by the RE model is only 0.04 while it is 1.18 in the data. On the other hand, the RE model overpredicts the correlation between government budget deficit and 28 In Lloyd-Ellis, Zhan, and Zhu (2005), the authors use the government budget surplus, which is defined as total receipts minus total outlays. 29 As US government debt remained at very high levels during and after the Korean War period, here we excludes the high debt years surrounding the Korean War.…”

Section: Resultsmentioning

confidence: 99%

“…Government budget deficit is defined as total outlays minus total receipts. 28 Government debt is defined as the federal debt (end of period) held by the public. Tax rate is defined as tax revenues divided by GDP.…”

Section: Datamentioning

confidence: 99%

“…It is worth noting that our paper is related to the recent literature on optimal fiscal policy under model uncertainty, e.g., Karantounias (2013) and Svec (2012). Karantounias (2013) solving the non-LQ RB models, and Bidder and Smith (2011) and Young (2012) examined optimal fiscal policy in the setting of Lucas and Stocky (1983) in which the representative consumer distrusts the approximating model, and Svec (2012) studied how different types of government conduct optimal fiscal policy when the consumer faces model uncertainty.…”

Section: Introductionmentioning

confidence: 99%

“…Karantounias (2013) solving the non-LQ RB models, and Bidder and Smith (2011) and Young (2012) examined optimal fiscal policy in the setting of Lucas and Stocky (1983) in which the representative consumer distrusts the approximating model, and Svec (2012) studied how different types of government conduct optimal fiscal policy when the consumer faces model uncertainty. Like Karantounias (2013), we assume that the model uncertainty is incorporated in the government decision process.…”

Section: Introductionmentioning

confidence: 99%

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Model Uncertainty and Intertemporal Tax Smoothing

2012

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In this paper we examine how model uncertainty due to the preference for robustness (RB) affects optimal taxation and the evolution of debt in the Barro tax-smoothing model (1979). We first study how the government spending shocks are absorbed in the short run by varying taxes or through debt under RB. Furthermore, we show that introducing RB improves the model's predictions by generating (i) the observed relative volatility of the changes in tax rates to government spending, (ii) the observed comovement between government deficits and spending, and (iii) more consistent behavior of government budget deficits in the US economy.

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Optimal fiscal policy with robust control

Svec

2012

Journal of Economic Dynamics and Control

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Managing Expectations and Fiscal Policy

Cited by 13 publications

References 37 publications

Robustness and Macroeconomic Policy

Robustness and Macroeconomic Policy

Model Uncertainty and Intertemporal Tax Smoothing

Optimal fiscal policy with robust control

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