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

Leith, Campbell; Thadden, Leopold von

doi:10.1016/j.jet.2007.07.005

Cited by 66 publications

(50 citation statements)

References 44 publications

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“…Both fiscal rules are ad-hoc rules and reflect our assumption that governments have no borrowing constraints in the short run. This is in line with Leith and Von Thadden (2008), who develop a tractable NK model where government debt is not subject to a budget constraint.…”

Section: Fiscal and Monetary Policy Authoritiessupporting

confidence: 81%

Monetary and Fiscal Policy in Times of Crises: A New Keynesian Perspective in Continuous Time

Hayo

Niehof

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

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Section: Fiscal and Monetary Policy Authoritiessupporting

confidence: 81%

Monetary and Fiscal Policy in Times of Crises: A New Keynesian Perspective in Continuous Time

Hayo

Niehof

2014

SSRN Journal

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“…Recent and more detailed discussions can be found, for example, in Schmitt-Grohé and Uribe (2007) and Leith and von Thadden (2008). 9 Endogenous state variables with predetermined initial conditions relate, in particular, to the level of aggregate non-human wealth, its breakdown across assets, and its distribution between workers and retirees.…”

Section: General Equilibriummentioning

confidence: 99%

Interest Rate Effects of Demographic Changes in a New Keynesian Life-Cycle Framework

Kara

Thadden

2014

Macroecon. Dynam.

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“…The first wave of DSGE papers studied fiscal policy alongside monetary policy and focussed on how the stability properties of monetary policy rules are influenced by fiscal policy, basically building on Leeper's (1991) active and passive monetary policy (see e.g. Lubik, 2003, Kremer, 2004, Railavo, 2004, Schmitt-Grohé and Uribe, 2006, Leith and von Thadden, 2008, and Stehn and Vines, 2008. Another strand of literature on fiscal policy in DSGE models has tended to focus on the cyclical impact rather than debt feedback (as, for example, also in, Taylor, 2000, Auerbach, 2002, and Favero and Monacelli, 2005, while only recently, the discussion about simple stabilizing fiscal rules related to debt, their optimal design and, partly, their strategic interaction with monetary policy has been taken up (see e.g.…”

Section: Related Literaturementioning

confidence: 99%

The debt brake: business cycle and welfare consequences of Germany’s new fiscal policy rule

Mayer

Stähler

2011

Empirica

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Abstract:In a New Keynesian DSGE model with non-Ricardian consumers, we show that automatic stabilization according to a countercyclical spending rule following the idea of the debt brake is well suited both to steer the economy and in terms of welfare. In particular, the adjustment account set up to record public deficits and surpluses serves well to keep the level of government debt stable. However, it is essential to design its feedback to government spending correctly, where discretionary lapses should be corrected faster than lapses due to estimation errors.Keywords: fiscal policy, debt brake, welfare, dsge.JEL classification: E 32, G 61, E 62. Non-technical summaryThe possibilities and limits of fiscal policy regarding economic stabilization have moved center stage lately, certainly also prompted by the current economic downturn. In this context, it is continuously stressed that it is necessary to assure sustainability of public finances and the confidence therein. This can be achieved not least by reliable consolidation after the crisis, and -at least in normal times -by rule-based budget requirements. For example, the International Monetary Fund recently identified a possible positive role for rule-based fiscal policy emphasizing that is must be sustainable and reliable if countercyclical fiscal policy is to unfold its desired effects. While in the 1970s, there seemed to be confidence in somewhat active discretionary fiscal policy, further developments have shown that rule-based actions are needed because of reasons revealed in the political economic literature. This insight is also the basis for the fiscal framework of the European (monetary) union.The focus of the present paper is on the analysis of a rule-based fiscal policy, in particular, the "debt brake", which is expected to be introduced in Germany soon and has already been implemented in Switzerland. The discussion about the introduction of the debt brake has to be seen in the context of European fiscal rules, namely the European Stability and Growth Pact (SGP). As a rule, the SGP demands roughly balanced budgets in structural terms, while letting the automatic stabilizers take effect. The corrective arm of the pact is called on particularly if the 3% deficit ceiling is violated. The 60% debt ceiling also plays a role. As German national budgetary rules have not been consistent with the European framework, and they were largely assessed as being inappropriate with a view to limiting the increase in public debt, this was the hour of birth of the "Förderalismuskommission II" (federalism reform commission), which recently agreed on a proposal for the DB.Similar to the SGP, the debt brake demands (almost) structurally balanced budgets and, thus, ties cyclically adjusted government spending (including interest on outstanding debt) to cyclically adjusted trend revenues raised by the government and, therefore, acts as an automatic stabilizer since the government finances some of its expenditures from deficits in "bad times" while accumulating surpluses...

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

Cited by 66 publications

References 44 publications

Monetary and Fiscal Policy in Times of Crises: A New Keynesian Perspective in Continuous Time

Monetary and Fiscal Policy in Times of Crises: A New Keynesian Perspective in Continuous Time

Interest Rate Effects of Demographic Changes in a New Keynesian Life-Cycle Framework

The debt brake: business cycle and welfare consequences of Germany’s new fiscal policy rule

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