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We derive a set of stylized facts on the effects of non-systematic fiscal policy in the four largest countries of the Euro area. We find relevant differences across countries in the effects of non-systematic fiscal policy, and sub...
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We derive a set of stylized facts on the effects of non-systematic fiscal policy in the four largest countries of the Euro area. We find relevant differences across countries in the effects of non-systematic fiscal policy, and substantial uncertaintyabout the size of these effects. Yet, in general, expenditure shocks are usually rather ineffective in increasing output growth, and can require deficit financing Tax policies also appear to have minor effects on output, but usually tax increases do nothave negative effects,. Disaggregating expenditures and receipts yields some interesting results, in particular increases in government consumption decrease output in all countries, while social benefits can increase it.
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It is hard to remember that just 18 months ago the world was suffering from a very serious burst of inflation. At the time we urged the world's top central bankers to hammer out a joint approach to reducing global inflation, centr...
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It is hard to remember that just 18 months ago the world was suffering from a very serious burst of inflation. At the time we urged the world's top central bankers to hammer out a joint approach to reducing global inflation, centred on a common public commitment to tighter monetary policies (Posen and Subramanian, 2008). At the time, we saw the European Central Bank and a few emerging market central banks (such as those of Brazil and India) taking the lead, but we saw inadequate response from the US Federal Reserve and the People's Bank of China. At that time we perceived a temptation to try to free-ride-and we argued that this would only delay and increase the cost of the inevitable tightening which these central banks would have to carry out.
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This paper aims to show how state intervention within the European Monetary Union can have positive effects not only on growth but also on public balances and debt. The relation between centralized monetary policy and decentralize...
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This paper aims to show how state intervention within the European Monetary Union can have positive effects not only on growth but also on public balances and debt. The relation between centralized monetary policy and decentralized fiscal policy partly solves the lack of coordination between the two. Each time a fiscal expansion in an EU country is not accompanied by a Central Bank interest rate increase, the expansionary effect of public spending, initially financed through the emission of public bonds, will be reinforced by endogenous money creation due to the increase in growth. The final result, if growth exceeds the rate of interest, is not only an increase in equilibrium income, but also a reduction in debt.
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A two-country sticky-price model is used to analyse the interactions between fiscal and monetary policy. The role of an 'activist' fiscal policy as a stabilisation tool is considered and a measure of the welfare gains from interna...
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A two-country sticky-price model is used to analyse the interactions between fiscal and monetary policy. The role of an 'activist' fiscal policy as a stabilisation tool is considered and a measure of the welfare gains from international fiscal policy cooperation is derived, It is found that welfare gains from fiscal cooperation do exist provided monetary policy is set cooperatively. There are also welfare gains from fiscal policy cooperation in a monetary union. However, it is found that a 'non-activ ist' fiscal policy can be better than non-cooperative fiscal policy when the international correlation of shocks is strongly negative. And non-cooperative fiscal policy can be better than cooperative fiscal policy if monetary policy is not set cooperativ ely.
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Against all odds, the euro turned out to be a weak currency. We argue that this outcome can readily be explained by the policy-mix that was chosen at the onset of the period: tight fiscal policies following the convergence mechani...
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Against all odds, the euro turned out to be a weak currency. We argue that this outcome can readily be explained by the policy-mix that was chosen at the onset of the period: tight fiscal policies following the convergence mechanism that was imposedby the Maastricht treaty and loose monetary policy that resulted from the convergence of interest rates to the lower point of the spectrum. We investigate this outcome empirically and show that the euro's weakness can be understood as the result of an excess supply in the zone. which is channelled abroad in the usual beggar my neighbor way.
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The traditional theory of economic policy of the Tinbergen-Theil-type has come under severe criticism: in the ontological setting of the "new classical macroeconomics " based on the rational expectations hypothesis, economic polic...
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The traditional theory of economic policy of the Tinbergen-Theil-type has come under severe criticism: in the ontological setting of the "new classical macroeconomics " based on the rational expectations hypothesis, economic policy is ineffective or neutral with respect to real variables. In the ontological setting of Hayekian economics based on informational deficiencies, economic policy is without orientation and, therefore, more harmful than helpful. Therefore, both criticisms are united in their rejection of state interventions. In this paper, a Post Keynesian alternative is presented which is situated between nomocratic abstinence and teleological controllability.
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We use the two-country euro area model developed by Quint and Rabanal (2014) to study policymaking in a monetary union. We focus on: 1) a two-policymaker setting where there is strategic interaction between a single monetary autho...
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We use the two-country euro area model developed by Quint and Rabanal (2014) to study policymaking in a monetary union. We focus on: 1) a two-policymaker setting where there is strategic interaction between a single monetary authority and an EMU-level macro-prudential authority, and; 2) a three-policymaker setting where there is strategic interaction between a single monetary authority and two regional-level macroprudential authorities. In the former, price stability and financial stability are pursued at the area-wide level, while in the latter each macro-prudential authority adopts region-specific objectives. We compare cooperative and noncooperative equilibria in simultaneous-move and leadership environments, each obtained assuming discretionary policymaking. In the two-policymaker setting, we find that the gains from either the monetary authority or the macroprudential regulator having a first-mover, or leadership, advantage are somewhat limited, and the most favorable outcome is achieved under cooperation where both policies are formulated and conducted simultaneously. In the threepolicymaker setting, we find that delegating macroprudential policy to regional macroprudential regulators plays an important role in achieving regional stability.
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We estimate the Smets-Wouters model featuring the Gertler-Karadi banking sector on US data using real and financial observables. We investigate the gains from coordination between a flexible inflation targeting central bank and a ...
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We estimate the Smets-Wouters model featuring the Gertler-Karadi banking sector on US data using real and financial observables. We investigate the gains from coordination between a flexible inflation targeting central bank and a macroprudential regulator charged with safeguarding financial stability. The potential gains from coordination depend on how much importance is given to the output gap in the macroprudential mandate. Coordination conflicts can be avoided by assigning similar importance to this common objective in the respective mandates of both policies. When we derive optimal mandates for monetary and macroprudential policy under no-coordination, we find that both policy makers should place a higher weight than society on the output gap. (C) 2017 Elsevier B.V. All rights reserved.
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This paper examines the interaction between monetary and fiscal policies. Using annual panel data covering the period from 1991 to 2016 for 42 countries, it characterizes the cyclical behavior of monetary and fiscal policy, distin...
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This paper examines the interaction between monetary and fiscal policies. Using annual panel data covering the period from 1991 to 2016 for 42 countries, it characterizes the cyclical behavior of monetary and fiscal policy, distinguishing countries by institutional characteristics and policy frameworks. It also applies heterogeneous structural panel VAR methodology to quarterly data from a subset of these countries to assess the response to aggregate demand shocks. The main finding is that central bank independence and inflation targeting are associated with more countercyclical monetary and fiscal policies and an increased degree of coordination between the two.
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We analyse the effectiveness of fiscal policy rules for business cycle stabilisation in a monetary union using a quarterly macro-econometric model of Germany. The simulations compare a deficit target and an expenditure target unde...
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We analyse the effectiveness of fiscal policy rules for business cycle stabilisation in a monetary union using a quarterly macro-econometric model of Germany. The simulations compare a deficit target and an expenditure target under a range of supply, demand and fiscal shocks. Their effects are evaluated by their impact on prices and output. The analysis demonstrates that in general the deficit target of the stability pact leads to less stabilisation than an expenditure target. The results suggest that the deficit rule of the stability pact should be replaced with an expenditure rule augmented by medium-term debt targets.
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