2018
DOI: 10.1007/s00191-018-0562-8
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Nonlinear policy behavior, multiple equilibria and debt-deflation attractors

Abstract: This paper analyzes global dynamics in a macroeconomic model where both monetary and fiscal policies are nonlinear, consistent with empirical evidence. Nonlinear monetary policy, in which the nominal interest rate features an increasing marginal reaction to inflation, interacting with nonlinear fiscal policy, in which the primary budget surplus features an increasing marginal reaction to debt, gives rise to four steady-state equilibria. Each steady state exhibits in its neighborhood a pair of 'active'/'passive… Show more

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Cited by 4 publications
(1 citation statement)
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References 47 publications
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“…10 We shall address the robustness of this assumption for our results in Section 5, in which we investigate the dynamic consequences of an expenditure-based feedback policy function expressed relative to output-rather than relative to capital. The second observation is that the government is assumed to react to fiscal imbalances in a nonlinear way, through an increasing marginal adjustment of the fiscal instrument to upward changes in debt, in line with a fairly well-established empirical evidence (see Piergallini, 2019…”
Section: Piergallinisupporting
confidence: 61%
“…10 We shall address the robustness of this assumption for our results in Section 5, in which we investigate the dynamic consequences of an expenditure-based feedback policy function expressed relative to output-rather than relative to capital. The second observation is that the government is assumed to react to fiscal imbalances in a nonlinear way, through an increasing marginal adjustment of the fiscal instrument to upward changes in debt, in line with a fairly well-established empirical evidence (see Piergallini, 2019…”
Section: Piergallinisupporting
confidence: 61%