Nominal targeting in an economy with government debt

Bai, Yuting; Kirsanova, Tatiana; Leith, Campbell

doi:10.1016/j.euroecorev.2017.02.011

Cited by 8 publications

(5 citation statements)

References 61 publications

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“…A switch to PLT, therefore, what is observed in the data, and there is only small e¤ect on government debt. Bai et al (2017) reach a similar conclusion in a theoretical model. Bernanke (2017) discusses that most likely, this policy will only be needed in times of -possibly frequent -ZLB constraints.…”

Section: Defeating Zero Lower Boundsupporting

confidence: 77%

Tight and Loose, and Red and Blue: A 'Dance' of Macro Policies in the US

Kirsanova

Machado

Ribeiro³

2020

SSRN Journal

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Using optimising policy framework, we build and estimate a small-scale DSGE model of the US, and tell the story of monetary and …scal policy interactions in 1955-2018. We …nd that …scal policy is important to identify shifts in monetary policy preferences, and it is shaped by the political color. We use this model to analyse the episode of zero lower bound on interest rate in 2008-15. We …nd that the bound constrained monetary policy, explain some observed irregularities in macroeconomic data, and demonstrate that a change to price level targeting could have generated a powerful lift-o¤ from the constraint.

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Section: Defeating Zero Lower Boundsupporting

confidence: 77%

Tight and Loose, and Red and Blue: A 'Dance' of Macro Policies in the US

Kirsanova

Machado

Ribeiro³

2020

SSRN Journal

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“…3. A classic reference for this approach is Currie and Levine (1993), while recent examples include Pilcher (2011), Niemann et al (2013a), Adam and Billi (2014), Chen et al (2017), andBai et al (2017).…”

Section: Discussionmentioning

confidence: 99%

Political Conflict and Bargaining in a New Keynesian Model of Fiscal Stabilization

Flamini

Leith

2020

Macroecon. Dynam.

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Recent work on optimal monetary and fiscal policy in New Keynesian models has tended to focus on policy set by an infinitely lived benevolent policy maker, often with access to a commitment technology. In this paper, we explore deviations from this ideal, by allowing (time-consistent) policy to be set by a process of bargaining between two political players with different weights on elements of the social welfare function. We characterize the (linear) Markov perfect equilibrium and, in a series of numerical examples, we explore the resultant policy response to shocks which cannot be perfectly offset with the available instruments due to their fiscal consequences. We find that, even although the players, on average, have the socially desirable objective function, the process of bargaining implies an outcome which deviates from the time-consistent policy chosen by the benevolent policy maker. Moreover, the range of instruments available mean that policy makers will bargain across the entire policy mix, sometimes implying outcomes which are quite different from those that would be chosen by a single policy maker. These policy outcomes depend crucially on the nature of the conflict and also the level of government debt.

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“…Formally, this condition is obtained by rolling (12) forward to obtain Dixit and Lambertini (2003) show that when the two authorities are discretionary, fiscal leadership yields generally better outcomes. For a similar leadership structure, see also Bai et al (2017) and Chen, Leeper, and Leith (2019).…”

Section: Delegation Of the Loss Functions And The Constraintsmentioning

confidence: 97%

Looking Beyond the Trap: Fiscal Legacy and Central Bank Independence*

de Beauffort

2023

Oxf Bull Econ Stat

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I model a stochastic non‐cooperative game between an independent central bank and a treasury and study optimal time‐consistent policy in the context of demand‐driven recessions and an occasionally binding zero lower bound constraint. Departing from coordination leads to contractionary fiscal policy in the liquidity trap. The persistent decline in short‐term government debt improves price stability and welfare albeit at the expense of a deeper recession in the near term. Underlying this policy is the anticipated risk of monetary tightening during the economic recovery in response to fiscally induced inflation. The issuance of long‐term government debt helps to buffer the yield to maturity against interest rate fluctuations, thereby reducing the relevance of central bank independence for macroeconomic outcomes.

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Nominal targeting in an economy with government debt

Cited by 8 publications

References 61 publications

Tight and Loose, and Red and Blue: A 'Dance' of Macro Policies in the US

Tight and Loose, and Red and Blue: A 'Dance' of Macro Policies in the US

Political Conflict and Bargaining in a New Keynesian Model of Fiscal Stabilization

Looking Beyond the Trap: Fiscal Legacy and Central Bank Independence*

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