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Indexing the Income Tax Code, Monetary/Fiscal Interaction, and the Great Moderation
Abstract
This paper considers the consequences of automatically indexing the US federal income tax code to inflation. Indexation, implemented during the 1981 federal tax overhaul, and active monetary policy constitute necessary conditions for a unique rational expectations equilibrium in standard New Keynesian models with a generalized, progressive labor income tax. Additionally, fixing the monetary regime shows that indexation reduces overall volatility in the model as well as the contribution of supply-side disturbances. Together, these results support a fiscal extension to the “good policy” hypothesis of the Great Moderation and encourage further indexation of the United States tax code.
... The issues of tax and fiscal reforms are investigated in their different aspects in the researches by A. Keinsley (2016) for the USA, Z. Yang (2016), and W. Xing & J. Whalley (2014) for China, J. R. Afonso, E. C. Araújo & B. G. Fajardo (2016) for Brazil, K. Gangl, B. Torgler, E. Kirchler & E. Hofmann (2014) for Austria, P. Semerád (2016) for the Czech Republic, and I. Hajdúchová, M. Sedliačiková & I. Viszlai (2015) for Slovakia. ...
The upcoming period is marked for Russian tax system with crucial reforms and restructuring. By 2019, the national tax reform of value added tax (VAT) and insurance premiums is expected to be completed. Three options of the proposed changes in tax rates will be considered in this article, as well as possible fiscal consequences for the national economy will be calculated. The purpose of the article is to assess fiscal effect of the three options for tax reform conducted until 2019. Computationalanalytical method was used as the main one. Possible fiscal consequences for the national economy were calculated on the basis of three options of the proposed changes in tax rates. The study was conducted on the example of four taxes: value added tax, corporate income tax, personal income tax, and insurance premiums. Based on the calculations, the possible consequences of changes in tax rates are determined taking into account possible changes in consumer behaviour, systems approach to the investigation of the tax system, and the appearance of the feedback loop effect.
Due to a lack of adequate before and after tax time series, the impact of inflation on the income distribution in the presence of a progressive tax system is widely unexplored. Contributions using U.S. data have not reached a consensus about income inequality decreasing, increasing or showing no significant association with inflation. Our study analyzes the relationship across the distribution. We use a recently available dataset on U.S. income before and after taxation on a quintile-by-quintile basis for 1962–2016. We find inflation (i) before taxes to, if any, slightly decrease inequality, (ii) to amplify tax progressivity, and (iii) after taxes to reduce the Gini coefficient by 0.4 of a standard deviation in response to a one percentage point inflationary shock. We attribute (i) to the creditor-debtor channel. Findings (ii) and (iii) indicate missing or incomplete indexation redistributing particularly from the fourth quintile to the two bottom quintiles.
Economic theory suggests that variations in marginal tax rates are more important for consumption and investment decisions than the average rates commonly studied. This article analyzes the aggregate implications of the statutory tax code, using a new times series on annual marginal tax rates, which decomposes the federal income tax code into its “level” and “progressive” (or spread) components. Robust results from a vector autoregression model show that increasing the spread of the marginal income tax rates has a positive impact on private spending growth, leading to an indirect, negative impact on the primary deficit ratio. Contrary to the political narrative, our findings suggest that the general level of these tax rates does not significantly impact growth rates or the primary deficit ratio.
Increases in government spending trigger substitution effects—both inter- and intra-temporal—and a wealth effect. The ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior. Studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption: higher future taxes create a strong negative wealth effect, while the active monetary response increases the real interest rate. This paper estimates Markov-switching policy rules for the United States and finds that monetary and fiscal policies fluctuate between active and passive behavior. When the estimated joint policy process is imposed on a conventional new Keynesian model, government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized. The paper reports the model's predictions of the macroeconomic impacts of the American Recovery and Reinvestment Act's implied path for government spending under alternative monetary–fiscal policy combinations.
We introduce deep habits into a sticky-price sticky-wage economy and examine the resulting models ability to account for the impact of monetary policy shocks. The deep habits mechanism gives rise to countercyclical markup movements even when prices are flexible and interacts with nominal rigidities in interesting ways. Key parameters are estimated using a limited information approach. The deep habits model can account very precisely for the persistent impact of monetary policy shocks on aggregate consumption and for both the price puzzle and inflation persistence. A key insight is that the deep habits mechanism and nominal rigidities are complementary: the deep habits model can account for the dynamic effects of monetary policy shock at low to moderate levels of nominal rigidities. The results are shown to be stable over time and not caused by monetary policy changes.
We estimate a forward-looking monetary policy reaction function for the postwar United States economy, before and after Volcker's
appointment as Fed Chairman in 1979. Our results point to substantial differences in the estimated rule across periods. In
particular, interest rate policy in the Volcker-Greenspan period appears to have been much more sensitive to changes in expected
inflation than in the pre-Volcker period. We then compare some of the implications of the estimated rules for the equilibrium
properties of inflation and output, using a simple macroeconomic model, and show that the Volcker-Greenspan rule is stabilizing.
An examination of the inflation-indexing provisions contained in the Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986.
We introduce deep habits into a sticky-price sticky-wage economy and examine the resulting models ability to account for the impact of monetary policy shocks. The deep habits mechanism gives rise to countercyclical markup movements even when prices are flexible and interacts with nominal rigidities in interesting ways. Key parameters are estimated using a limited information approach. The deep habits model can account very precisely for the persistent impact of monetary policy shocks on aggregate consumption and for both the price puzzle and inflation persistence. A key insight is that the deep habits mechanism and nominal rigidities are complementary: the deep habits model can account for the dynamic effects of monetary policy shock at low to moderate levels of nominal rigidities. The results are shown to be stable over time and not caused by monetary policy changes.
In a standard New Keynesian model, a myopic central bank concerned with stabilizing inflation and changes in the output gap will implement a policy under discretion that replicates the optimal, timeless perspective, precommitment policy. By stabilizing output gap changes, the central bank imparts inertia into output and inflation that is absent under pure discretion. Even a fully optimizing (i.e., non-myopic) central bank operating in a discretionary policy environment achieves better social outcomes if it focuses on inflation and changes in the output gap than are achieved under inflation targeting.
We address the optimal marginal source of financing shocks that raise fiscal needs in the presence of a maturity structure for nominal government debt, distortionary taxes, and sticky prices. We find: (1) the importance of innovations in current and expected inflation that revalue debt increases with both the average maturity and the level of debt; (2) an analytical trade off between inflation and output-gap stabilization as a function of debt maturity; (3) at current debt levels and maturity lengths in advanced economies, inflation would account for as much as 50 percent of marginal optimal financing; (4) maturity attenuates welfare losses from nominal rigidities.
I estimate a forward-looking monetary policy reaction function for the Federal Reserve for the periods before and after Paul Volcker's appointment as Chairman in 1979, using information that was available to the FOMC in real time from 1966 to 1995. The results suggest broad similarities in policy and point to a forward looking approach to policy consistent with a strong reaction to inflation forecasts during both periods. This contradicts the hypothesis, based on analysis with ex post constructed data, that the instability of the Great Inflation was the result of weak FOMC policy responses to expected inflation. A difference is that prior to Volcker's appointment, policy was too activist in reacting to perceived output gaps that retrospectively proved overambitious. Drawing on contemporaneous accounts of FOMC policy, I discuss the implications of the findings for alternative explanations of the Great Inflation and the improvement in macroeconomic stability since then.
Numerous studies have used quarterly data to estimate monetary policy rules or reaction functions that appear to exhibit a very slow partial adjustment of the policy interest rate. The conventional wisdom asserts that this gradual adjustment reflects a policy inertia or interest rate smoothing behavior by central banks. However, such quarterly monetary policy inertia would imply a large amount of forecastable variation in interest rates at horizons of more than three months, which is contradicted by evidence from the term structure of interest rates. The illusion of monetary policy inertia evident in the estimated policy rules likely reflects the persistent shocks that central banks face.
We estimate a forward-looking monetary policy reaction function for the postwar United States economy, before and after Volcker's appointment as Fed Chairman in 1979. Our results point to substantial differences in the estimated rule across periods. In particular, interest rate policy in the Volcker-Greenspan period appears to have been much more sensitive to changes in expected inflation than in the pre-Volcker period. We then compare some of the implications of the estimated rules for the equilibrium properties of inflation and output, using a simple macroeconomic model, and show that the Volcker-Greenspan rule is stabilizing.
The mechanisms governing the relationship of money, prices and interest rates to the business cycle are the most studied and most disputed topics in macroeconomics. In this paper, we first document key empirical aspects of this relationship. We then ask how well three benchmark rational expectations macroeconomic models - a real business cycle model, a sticky price model and a liquidity effect model - account for these central facts. While the models have diverse successses and failures, none can account for the fact that real and nominal interest rates are "inverted leading indicators" of real economic activity. That is, none of the models captures the post-war U.S. business cycle fact that a high real or nominal interest rate in the current quarter predicts a low level of real economic activity two to four quarters in the future.
A micro-founded model that allows for changes in the monetary/fiscal policy mix and in the volatility of structural shocks is fit to US post-WWII data. Agents are aware of the possibility of regime changes and their beliefs have an impact on the law of motion of the macroeconomy. The results show that the '60s and the '70s were characterized by a prolonged period of active fiscal policy and passive monetary policy. The appointment of Volcker marked a change in the conduct of monetary policy, but it took almost ten years for the fiscal authority to start accommodating this regime change.
With positive trend inflation, the Taylor principle is not enough to guarantee a determinate equilibrium. We provide new theoretical results on restoring determinacy in New Keynesian models with positive trend inflation and combine these with new empirical findings on the Federal Reserve’s reaction function before and after the Volcker disinflation to find that 1) while the Fed likely satisfied the Taylor principle in the pre-Volcker era, the US economy was still subject to self-fulfilling fluctuations in the 1970s, 2) the US economy moved from indeterminacy to determinacy during the Volcker disinflation, and 3) the switch from
indeterminacy to determinacy was due to the changes in the Fed’s response to macroeconomic variables and the decline in trend inflation during the Volcker disinflation.
This paper systematically examines the interrelations between a progressive income tax schedule and macroeconomic (in)stability in an otherwise standard one-sector real business model with productive government spending. We analytically show that the economy exhibits indeterminacy and sunspots if and only if the equilibrium after-tax wage-hours locus is positively sloped and steeper than the household's labor supply curve. Unlike in the framework with useless public expenditures, a less progressive tax policy may operate like an automatic stabilizer that mitigates belief-driven cyclical fluctuations. Moreover, our quantitative analysis shows that this result is able to provide a theoretically plausible explanation for the discernible reduction in US output volatility after the Tax Reform Act of 1986 was implemented.
This paper extends a New Keynesian model to include roles for currency and de-posits as competing sources of liquidity services demanded by households. It shows that, both qualitatively and quantitatively, the Barnett critique applies: While a Di-visia aggregate of monetary services tracks the true monetary aggregate almost per-fectly, a simple-sum measure often behaves quite differently. The model also shows that movements in both quantity and price indices for monetary services correlate strongly with movements in output following a variety of shocks. Finally, the analysis characterizes the optimal monetary policy response to disturbances that originate in the financial sector. JEL: C43, E32, E41, E52.
We present new empirical evidence for the way inflation reduces the inequality of the income distribution in the U.S. economy. The main mechanism emphasized in this paper is the "bracket creep" effect according to which inflation pushes income into higher tax brackets. Governments adjust the nominal income tax brackets slowly due to the rise in prices, typically less often than once every other year in the U.S. postwar history. We also develop a theoretical general equilibrium monetary model with income heterogeneity. In line with our time series evidence, it is rather the frequency of income tax schedule adjustments than the overall level of inflation that has a perceptible impact on the distribution of income. We find that a longer duration between two successive adjustments of the schedule reduces employment, savings, and output significantly.
This paper uses a New Keynesian model with banks and deposits, calibrated to match the US economy, to study the macroeconomic effects of policies that pay interest on reserves. While their effects on output and inflation are small, these policies require important adjustments in the way that the monetary authority manages the supply of reserves, as liquidity effects vanish and households' portfolio shifts increase banks' demand for reserves when short-term interest rates rise. Money and monetary policy remain linked in the long run, however, since policy actions that change the price level must change the supply of reserves proportionately.
We examine the performance and robustness of monetary policy rules when the central bank and the public have imperfect knowledge of the economy and continuously update their estimates of model parameters. We find that versions of the Taylor rule calibrated to perform well under rational expectations with perfect knowledge perform very poorly when agents are learning and the central bank faces uncertainty regarding natural rates. In contrast, difference rules, in which the change in the interest rate is determined by the inflation rate and the change in the unemployment rate, perform well when knowledge is both perfect and imperfect. (JEL: E52)
This paper considers how ARCH effects may be handled in time series models formulated in terms of unobserved components. A general model is formulated, but this includes as special cases a random walk plus noise model with both disturbances subject to ARCH effects, an ARCH-M model with a time-varying parameter, and a latent factor model with ARCH effects in the factors. Although the model is not conditionally Gaussian, an approximate filter can be obtained and used as the basis for estimation. The performance of this method is examined on real data sets and Monte Carlo experiments are carried out. The method is extended to handle GARCH and a latent factor model based on the t-distribution.
In this paper, we consider estimation of a time-varying parameter model for a forward-looking monetary policy rule, by employing ex post data. A Heckman-type (1976. The common structure of statistical models of truncation, sample selection, and limited dependent variables and a simple estimator for such models. Annals of Economic and Social Measurement 5, 475–492) two-step procedure is employed in order to deal with endogeneity in the regressors. This allows us to econometrically take into account changing degrees of uncertainty associated with the Fed's forecasts of future inflation and GDP gap when estimating the model. Even though such uncertainty does not enter the model directly, we achieve efficiency in estimation by employing the standardized prediction errors for inflation and GDP gap as bias correction terms in the second-step regression. We note that no other empirical literature on monetary policy deals with this important issue. Our empirical results also reveal new aspects not found in the literature previously. That is, the history of the Fed's conduct of monetary policy since the early 1970s can in general be divided into three subperiods: the 1970s, the 1980s, and the 1990s. The conventional division of the sample into pre-Volcker and Volcker–Greenspan periods could mislead the empirical assessment of monetary policy.
In recent years, activist monetary policy rules responding to inflation and the level of economic activity have been advanced as a means of achieving effective output stabilization without inflation. Advocates of such policies suggest that their flexibility may yield substantial stabilization benefits while avoiding the excesses of overzealous discretionary fine-tuning such as is thought to characterize the experience of the 1960s and 1970s. In this study I present evidence suggesting that these conclusions are misguided. Using an estimated model, I show that when informational limitations are properly accounted for, activist policies would not have averted the Great Inflation but instead would have resulted in worse macroeconomic performance than the actual historical experience. The problem can be attributed, in large part, to the counterproductive reliance of these policies on the output gap. The analysis suggests that the dismal economic outcomes of the Great Inflation may have resulted from an unfortunate pursuit of activist policies in the face of bad measurement, specifically, overoptimistic assessments of the output gap associated with the productivity slowdown of the late 1960s and early 1970s.
Numerous studies have used quarterly data to estimate monetary policy rules or reaction functions that appear to exhibit a very slow partial adjustment of the policy interest rate. The conventional wisdom asserts that this gradual adjustment reflects a policy inertia or interest rate smoothing behavior by central banks. However, such quarterly monetary policy inertia would imply a large amount of forecastable variation in interest rates at horizons of more than 3 months, which is contradicted by evidence from the term structure of interest rates. The illusion of monetary policy inertia evident in the estimated policy rules likely reflects the persistent shocks that central banks face.
This paper investigates the impact of tax changes on economic activity. We use the narrative record, such as presidential speeches and Congressional reports, to identify the size, timing, and principal motivation for all major postwar tax policy actions. This analysis allows us to separate legislated changes into those taken for reasons related to prospective economic conditions and those taken for more exogenous reasons. The behavior of output following these more exogenous changes indicates that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. (JEL E32, E62, H20, N12)
The New Keynesian framework has emerged as the workhorse for the analysis of monetary policy and its implications for inflation, economic fluctuations, and welfare. It is the backbone of the new generation of medium-scale models under development at major central banks and international policy institutions, and provides the theoretical underpinnings of the inflation stability-oriented strategies adopted by most central banks throughout the industrialized world. This graduate-level textbook provides an introduction to the New Keynesian framework and its applications to monetary policy. Using a canonical version of the New Keynesian model as a reference framework, Jordi Galí explores issues pertaining to the design of monetary policy, including the determination of the optimal monetary policy and the desirability of simple policy rules. He analyzes several extensions of the baseline model, allowing for cost-push shocks, nominal wage rigidities, and open economy factors. In each case, the implications for monetary policy are addressed, with a special emphasis on the desirability of inflation targeting policies.
In the New Keynesian model, preference, cost-push, and monetary shocks all compete with the real-business-cycle model's technology shock in driving aggregate fluctuations. A version of this model, estimated via maximum likelihood, points to these other shocks as being more important for explaining the behavior of output, inflation, and interest rates in the postwar U.S. data. These results weaken the links between the current generation of New Keynesian models and the real-business-cycle models from which they were originally derived. They also suggest that Federal Reserve officials have often faced difficult trade-offs in conducting monetary policy. Copyright (c) 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.
We examine the reliability of alternative output detrending methods, with special attention to the accuracy of real-time estimates of the output gap. We show that ex post revisions of the estimated gap are of the same order of magnitude as the estimated gap itself and that these revisions are highly persistent. Although important, the revision of published data is not the primary source of revisions in measured output gaps; the bulk of the problem is due to the pervasive unreliability of end-of-sample estimates of the trend in output. Multivariate methods that incorporate information from inflation to estimate the output gap are not more reliable than their univariate counterparts. Copyright (c) 2002 President and Fellows of Harvard College and the Massachusetts Institute of Technology.
This paper explores different fiscal stimuli within a business cycle model with an endogenous number of firms. We demonstrate that a changing number of firms is a crucial dimension for evaluating fiscal policy since it accelerates the impacts of fiscal policy. In the presence of demand stimuli fiscal multipliers are small and the number of firms may decline, in particular under distortionary tax financing. Policies that disburden private agents from income taxes, on the other hand, are effective in boosting economic activity and new firm creation. --
The Great Moderation in the US economy has been accompanied by large changes in the comovements among output, hours, and labor productivity. Those changes are reflected in both conditional and unconditional second moments as well as in the impulse responses to identified shocks. Among other changes, our findings point to an increase in the volatility of hours relative to output, a shrinking contribution of nontechnology shocks to output volatility, and a change in the cyclical response of labor productivity to those shocks. That evidence suggests a more complex picture than that associated with "good luck" explanations of the Great Moderation. (JEL: E23, E24, J22, J24)
This paper examines several episodes in U.S. monetary history using the framework of an interest rate rule for monetary policy. The main finding is that a monetary policy rule in which the interest rate responds to inflation and real output more aggressively than it did in the 1960s and 1970s, or than during the time of the international gold standard, and more like the late 1980s and 1990s, is a good policy rule. Moreover, if one defines rule, then such mistakes have been associated with either high and prolonged inflation or drawn out periods of low capacity utilization.
Matching university places to students is not as clear cut or as straightforward as it ought to be. By investigating the matching algorithm used by the German central clearinghouse for university admissions in medicine and related subjects, we show that a procedure designed to give an advantage to students with excellent school grades actually harms them. The reason is that the three-step process employed by the clearinghouse is a complicated mechanism in which many students fail to grasp the strategic aspects involved. The mechanism is based on quotas and consists of three procedures that are administered sequentially, one for each quota. Using the complete data set of the central clearinghouse, we show that the matching can be improved for around 20% of the excellent students while making a relatively small percentage of all other students worse off.
I estimate a forward-looking monetary policy reaction function for the Federal Reserve for the periods before and after Paul Volcker's appointment as Chairman in 1979, using information that was available to the FOMC in real time from 1966 to 1995. The results suggest broad similarities in policy and point to a forward-looking approach to policy consistent with a strong reaction to inflation forecasts during both periods. This contradicts the hypothesis, based on analysis with ex post constructed data, that the instability of the Great Inflation was the result of weak FOMC policy responses to expected inflation. A difference is that prior to Volcker's appointment, policy was too activist in reacting to perceived output gaps that retrospectively proved overambitious. Drawing on contemporaneous accounts of FOMC policy, I discuss the implications of the findings for alternative explanations of the Great Inflation and the improvement in macroeconomic stability since then.
This paper characterizes Federal Reserve policy since 1980 as one that actively manages short-term nominal interest rates in order to control inflation and evaluates this policy using a dynamic, stochastic, sticky-price model of the United States economy. The results show that the Fed's policy insulates aggregate output from the effects of exogenous demand-side disturbances and, by calling for a modest but persistent reduction in short-term interest rates following a positive technology shock, helps the economy to respond to supply-side disturbances as it would in the absence of nominal rigidities.
Many interpret estimated monetary policy rules as suggesting that central banks conduct very sluggish partial adjustment of short-term policy interest rates. In contrast, others argue that this appearance of policy inertia is an illusion and simply reflects the spurious omission of important persistent influences on the actual setting of policy. Similarly, the real-world implications of the theoretical arguments for policy inertia are open to debate. However, empirical evidence on policy gradualism obtained by examining expectations of future monetary policy embedded in the term structure of interest rates is definitive and indicates that the actual amount of policy inertia is quite low.
In his presidential address to the American Economic Association (AEA), Milton Friedman (1968) warned not to expect too much from monetary policy. In particular, Friedman argued that monetary policy could not permanently influence the levels of real output, unemployment, or real rates of return on securities. However, Friedman did assert that a monetary authority could exert substantial control over the inflation rate, especially in the long run. The purpose of this paper is to argue that, even in an economy that satisfies monetarist assumptions, if monetary policy is interpreted as open market operations, then Friedman’s list of the things that monetary policy cannot permanently control may have to be expanded to include inflation.
This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political autonomy of the central banks in emerging market and developing countries. Our analysis confirms that greater CBA has on average helped to maintain low inflation levels. The paper identifies four broad principles of CBA that have been shared by the majority of countries. Significant differences exist in the area of banking supervision where many central banks have retained a key role. Finally, we discuss the sequencing of reforms to separate the conduct of monetary and fiscal policies. IMF Staff Papers (2009) 56, 263–296. doi:10.1057/imfsp.2008.25; published online 23 September 2008
It has been shown that a one-sector real business cycle model with sufficient increasing returns in production may possess an indeterminate steady state that can be exploited to generate business cycles driven by "animal spirits" of agents. This paper shows how an income tax schedule that exhibits a progressivity feature can ensure saddle path stability in such a framework and thereby stabilize the economy against sunspot fluctuations. Conversely, an economy with a flat or regressive tax schedule is more susceptible to indeterminacy.
This paper studies the consequences for the behaviour of aggregate output of the perception on the part of firms that changing
prices is costly. The rational expectations equilibrium of an economy with many such firms is constructed. It is shown that
in this economy nominal shocks have a persistent effect on aggregate output. Furthermore, the real wage is demonstrated to
move procyclically in such an economy.
The last two U.S. expansions have been unusually long. One view is that this is the result of luck, of an absence of major adverse shocks over the last twenty years. We argue that more is at work, namely a large underlying decline in output volatility. This decline is not a recent development, but rather a steady one, visible already in the 1950s and the 1960s, interrupted in the 1970s and early 1980s, with a return to trend in the late 1980s and the 1990s. The standard deviation of quarterly output growth has declined by a factor of 3 over the period. This is more than enough to account for the increased length of expansions. We reach two other conclusions. First, the trend decrease can be traced to a number of proximate causes, from a decrease in the volatility in government spending early on, to a decrease in consumption and investment volatility throughout the period, to a change in the sign of the correlation between inventory investment and sales in the last decade. Second, there is a strong relation between movements in output volatility and inflation volatility. This association accounts for the interruption of the trend decline in output volatility in the 1970s and early 1980s.
The mechanisms governing the relationship of money, prices and interest rates to the business cycle are one of the most studied and most disputed topics in macroeconomics. In this paper, we first document key empirical aspects of this relationship. We then ask how well three benchmark rational expectations macroeconomic models --- a real business cycle model, a sticky price model and a liquidity effect model --- account for these central facts. While the models have diverse successes and failures, none can account for the fact that both real and nominal interest rates are "inverted leading indicators" of real economic activity. That is, none of the models captures the post-...
Maintaining price stability requires not only commitment to an appropriate monetary policy rule, but an appropriate fiscal policy rule as well. Ricardian equivalence does not imply that fiscal policy is irrelevant, except in the case of a certain class of policies ("Ricardian" policies). The role of fiscal developments in inflation determination under a non-Ricardian regime is illustrated through an analysis of the bond-price support regime of the 1940s. A monetary-fiscal regime with attractive properties would combine a "Taylor rule" for monetary policy with nominal-deficit targeting as a fiscal policy commitment. # O#cial text of the 2000 Money, Credit and Banking Lecture, presented at Ohio State University on May 1, 2000. I wish to thank Michael Bordo, Matt Canzoneri, Steve Cecchetti, Larry Christiano, John Cochrane, Paul Evans, Eduardo Loyo, Bennett McCallum, Helene Rey, Stephanie Schmitt-Grohe and Chris Sims for helpful discussions, Gauti Eggertsson for research assistance...
Technology Shocks in the New Keynesian Model. The Review of
- Pn Ireland
Ireland PN. Technology Shocks in the New Keynesian Model. The Review of Economics
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Adjusting Taxes for Inflation Tax Law Design and Drafting
- V Thuronyi
Thuronyi V. Adjusting Taxes for Inflation. In: Thuronyi V, editor. Tax Law Design and
Drafting. International Monetary Fund; volume 1; 1996. p. 434–76.
Tax Law Design and Drafting. International Monetary Fund
- V Thuronyi
Thuronyi V. Adjusting Taxes for Inflation. In: Thuronyi V, editor. Tax Law Design and
Drafting. International Monetary Fund; volume 1; 1996. p. 434-76.