Complexity in Stabilization Policies

2020 ◽  
pp. 206-215
Author(s):  
Vito Tanzi
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Rational Expectations ◽  
Ricardian Equivalence ◽  
Stabilization Policy ◽  
Stabilization Policies ◽  
The 1960S ◽  
The Impact

This chapter briefly revisits the book’s discussions of Keynes, the Great Depresssion, and Stabilization policies. It considers the importance of fiscal policy and the importance of simplicity in its use and the trust in its impact, especially in the 1960s. The chapter then looks at stagflation and growing doubts in the 1970s and the growing importance of rational expectations and of the Ricardian Equivalence Hypothesis and their impact on stabilization policy. Monetary policy also took on increasing importance in light of the growing complexity of the structure of the economy and the consequent growth of many new occupations. Finally, the impact of these changes and of growing globalization on the design of stabilization policies is discussed alongside a possible reduction in the effectiveness of fiscal policy.

scholarly journals Monetary Stabilization Policy in the Coronacrisis

2021 ◽  
Vol 129 ◽  
pp. 01015
Author(s):  
Tatiana Kotcofana ◽  
Anastasiya Titova ◽  
Armen Altunyan
Keyword(s):  
Monetary Policy ◽  
Policy Instruments ◽  
Value Added ◽  
Stabilization Policy ◽  
University Of Oxford ◽  
Global Recession ◽  
National Economies ◽  
The University ◽  
The Impact ◽  
The Relationship

Research background: In 2020, all the world's economies faced a new, special phenomenon – the coronacrisis caused by the pandemic, and with the fall of most economic indicators. In the current conditions, it is extremely important to build a competent monetary policy in order to soften the "blows" caused by the global recession for national economies. Purpose of the article: The main purpose of the presented article is the analysis of measures to stimulate the economy using monetary policy instruments in the conditions of the coronacrisis. Methods: To conduct the study, we used official statistics data, on the basis of which an econometric model was built, which allowed us to determine the forecast values for inflation, taking into account the impact of monetary and non-monetary factors. Findings & Value added: The econometric analysis show the high importance of non-monetary factors of inflation. This makes it difficult to assess the monetary policy, since Central banks are able to influence non-monetary factors only indirectly. The paper notes the influence of the refinancing rate on loans to the real sector of the economy, since the stabilization monetary policy should be primarily aimed at maintaining economic growth. The correlation field of the relationship between the index of rigidity of restrictions developed by the University of Oxford and loans to small and medium-sized businesses is constructed. It is noted that with the reduction of administrative restrictions, the volume of loans granted to small and medium-sized businesses increases.

scholarly journals Robustly Optimal Monetary Policy with Near-Rational Expectations

2010 ◽  
Vol 100 (1) ◽  
pp. 274-303 ◽  
Author(s):  
Michael Woodford
Keyword(s):  
Monetary Policy ◽  
Private Sector ◽  
Central Bank ◽  
Optimal Policy ◽  
Rational Expectations ◽  
Stabilization Policy ◽  
Optimal Monetary Policy ◽  
Inflation Target ◽  
Model Consistency ◽  
Long Run

The paper considers optimal monetary stabilization policy in a forward-looking model, when the central bank recognizes that private sector expectations need not be precisely model-consistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close enough to model-consistency. It is found that commitment continues to be important for optimal policy, that the optimal long-run inflation target is unaffected by the degree of potential distortion of beliefs, and that optimal policy is even more history-dependent than if rational expectations are assumed. (JEL C62, D84, E13, E31, E32, E52)

scholarly journals RELATIVE EFFECTIVENESS OF INDONESIAN POLICY CHOICES DURING FINANCIAL CRISIS

2012 ◽  
Vol 14 (2) ◽  
pp. 177-219 ◽  
Author(s):  
Tumpak Silalahi ◽  
Tevy Chawwa
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Financial Crisis ◽  
Global Financial Crisis ◽  
Relative Effectiveness ◽  
Government Expenditure ◽  
Jel Classification ◽  
Exit Strategy ◽  
Economic Output ◽  
The Impact

The objective of this paper is to review the impact of crisis and policy measures taken during the crisis, to evaluate the effectiveness of those measures and to analyze the exit strategy in Indonesia. The econometric model was used to evaluate the impact of monetary and fiscal policy to economic output using quarterly data from 1990 - 2010. The result shows that monetary and fiscal policies have significant impact to economic output. In the short run the changes in real GDP is significantly affected by changes in real monetary supply in the previous three quarter and real fiscal expenditures. The lesson learned from this research among other are that cooperation and coordination among the policy makers and the timely responses are very important in tackling the crisis; an effective conventional monetary policy in normal times may become less effective in a crisis thus unconventional monetary policy indeed necessary as timely policy response and the improvement for more timely disbursement of government expenditure is important to increase the effectiveness of this policy to stimulate economic output. Moreover, several Indonesian exit strategy and policies to face future challenges are very important to reach the ultimate objective of sustainable economic growth while maintaining macroeconomic stability. JEL Classification : E52, E62, E63Keywords: monetary policy, fiscal policy, financial sector policy, global financial crisis.

scholarly journals THE IMPACT OF THE MONETARY - FISCAL POLICY MIX ON INVESTMENTS OF EURO AREA COUNTRIES IN THE CONTEXT OF THE FINANCIAL CRISIS

2012 ◽  
Vol 8 (1) ◽  
pp. 228-236
Author(s):  
Joanna Stawska
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Financial Crisis ◽  
Interest Rates ◽  
Euro Area ◽  
Debt Crisis ◽  
Policy Mix ◽  
Monetary Authorities ◽  
Recent Financial Crisis ◽  
The Impact

The study presents the impact of monetary-fiscal policy mix on economic growth, mainly for the investments of euro area in financial crisis. Fiscal policy and monetary policy play an important role in the economy, influencing each other and on a number of economic variables as well. In the face of the recent financial crisis, which turned into a debt crisis, fiscal and monetary authorities have been working together to revive economic activity. There was a significant economic impact on the level of government investments. The central bank kept interest rates at very low levels and used nonstandard instruments of monetary policy. Fiscal authorities have increased government spending to stimulate investment and economic recovery. The paper concludes that the management of the fiscal and monetary authorities in a crisis situation has been modified compared to the period before the crisis, when the coordination of these policies was clearly weaker.

scholarly journals Tax Cuts And Interest Rate Cuts: An Empirical Comparison Of The Effectiveness Of Fiscal And Monetary Policy

2011 ◽  
Vol 2 (8) ◽  
Author(s):  
Tricia Coxwell Snyder ◽  
Donald Bruce
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Error Correction ◽  
Relative Effectiveness ◽  
Explanatory Power ◽  
Tax Rates ◽  
Stabilization Policy ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
Fiscal And Monetary Policy

<p class="MsoBlockText" style="margin: 0in 0.5in 0pt;"><span style="font-style: normal; mso-bidi-font-style: italic;"><span style="font-size: x-small;"><span style="font-family: Times New Roman;">Can expansionary fiscal or monetary policy stimulate the U.S. economy in light of recent events?<span style="mso-spacerun: yes;">&nbsp; </span>Using an Error-Correction-Vectorautoregression, we examine the relative effectiveness of both types of governmental stabilization policy. Unlike previous studies, we use a more general error correction vectorautoregression (ECM) approach.<span style="mso-spacerun: yes;">&nbsp; </span>Our focus is on determining the relative explanatory power of measures of monetary policy (M2 and the Federal Funds Rate) and fiscal policy (marginal income tax rates and government spending) in explaining movements in consumption, investment, and output.<span style="mso-spacerun: yes;">&nbsp; </span>Results suggest that monetary policy is relatively more powerful than fiscal policy. </span></span></span></p>

scholarly journals RELATIVE EFFECTIVENESS OF INDONESIAN POLICY CHOICES DURING FINANCIAL CRISIS

2012 ◽  
Vol 14 (2) ◽  
pp. 187-228
Author(s):  
Tumpak Silalahi ◽  
Tevy Chawwa
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Financial Crisis ◽  
Global Financial Crisis ◽  
Relative Effectiveness ◽  
Government Expenditure ◽  
Jel Classification ◽  
Exit Strategy ◽  
Economic Output ◽  
The Impact

The objective of this paper is to review the impact of crisis and policy measures taken during the crisis, to evaluate the effectiveness of those measures and to analyze the exit strategy in Indonesia. The econometric model was used to evaluate the impact of monetary and fiscal policy to economic output using quarterly data from 1990 - 2010. The result shows that monetary and fiscal policies have significant impact to economic output. In the short run the changes in real GDP is significantly affected by changes in real monetary supply in the previous three quarter and real fiscal expenditures. The lesson learned from this research among other are that cooperation and coordination among the policy makers and the timely responses are very important in tackling the crisis; an effective conventional monetary policy in normal times may become less effective in a crisis thus unconventional monetary policy indeed necessary as timely policy response and the improvement for more timely disbursement of government expenditure is important to increase the effectiveness of this policy to stimulate economic output. Moreover, several Indonesian exit strategy and policies to face future challenges are very important to reach the ultimate objective of sustainable economic growth while maintaining macroeconomic stability. JEL Classification : E52, E62, E63Keywords: monetary policy, fiscal policy, financial sector policy, global financial crisis.

scholarly journals Impact of Monetary Policy Uncertainty and Fiscal Policy Uncertainty on CO2 Emissions in the Us

2020 ◽  
Author(s):  
Khalid Anser ◽  
Qasim Syed ◽  
Noreen Khalid ◽  
Jamshid Ali Turi ◽  
Juned Ali Shah
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Environmental Degradation ◽  
Carbon Emissions ◽  
Annual Data ◽  
Policy Uncertainty ◽  
Policy Makers ◽  
Long Run ◽  
Short Run ◽  
The Impact

Abstract Nowadays, environmental degradation is perceived as one of the serious concerns across the globe. One of the prime reasons behind environmental degradation is CO2 emissions. Therefore, researchers are actively putting their efforts to explore the determinants of CO2 emissions to mitigate CO2 emissions. On this basis, the present study contributes to the existing literature by investigating the impact of monetary policy uncertainty (MPU) and fiscal policy uncertainty (FPU) on CO2 emissions (environmental degradation). The current study employs ARDL methodology and uses annual data ranging from 1985 to 2019 for US. The results from the ARDL model report that there is an existence of long-run relationship among the variables. Moreover, MPU escalates the carbon emissions in both short-run and long-run. This implies that increase in MPU is responsible for rise in environmental degradation. On the contrary, FPU plunges the carbon emissions in both short- and long-run. This indicates that increase in FPU decreases the environmental degradation. Findings from the current study propose that policy makers should introduce reforms and launch policies to shrink MPU. Next, this study proposes that rule should be adopted as monetary policy making framework in lieu of discretion. Furthermore, the current study recommends that FPU should not be utilized as a tool to mitigate environmental degradation, because FPU has severe economic impacts.

scholarly journals THE IMPACT OF MACROECONOMIC POLICY ON ECONOMIC GROWTH IN SUB-SAHARA AFRICAN COUNTRIES

2021 ◽  
Author(s):  
Ayana Workneh
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Fiscal Policy ◽  
National Income ◽  
Policy Coordination ◽  
Gross National Income ◽  
African Countries ◽  
The Government ◽  
The Impact ◽  
Panel Vector Autoregression

The prime purpose of this article was to investigate the monetary and fiscal policy interaction and their impact on economic growth in a panel of 35 sub-Saharan African economies from 1980 to 2018. To achieve this objective, the study employs a Panel Vector Autoregression (PVAR) estimation technique. Using a PVAR approach, we show that an expansionary fiscal policy through tax revenue and an unexpected expansionary monetary policy via broad money supply have a positive effect on gross national income, whereas an expansionary fiscal policy through the government spending have a contractionary impact on gross national income. We also find that an unexpected expansionary monetary policy via real exchange rate has no effect on gross national income. Finally, we show evidence that there is a negative and significant relationship between fiscal policy and monetary policy and thus supporting the need of policy coordination between fiscal and monetary policies. Therefore, to have continuous and sustainable economic growth, the coordination of monetary and fiscal policies is vital, and the lack of this coordination leads to a sharp downturn of overall economic performance, even can hurt the economy The empirical results also show that the variation in gross national income is more explained by fiscal policy variables than monetary policy variables which show fiscal policy is more effective than monetary policy in influencing gross national income.

scholarly journals The Coordination of Fiscal and Monetary Policies in Pakistan: An Empirical Analysis 1980–2011

2012 ◽  
Vol 51 (4II) ◽  
pp. 695-704
Author(s):  
Zubaria Andlib ◽  
Azra Khan ◽  
Ihtsham Ul Haq Ihtsham Ul Haq
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Inflation Rate ◽  
Aggregate Demand ◽  
Budget Deficits ◽  
Monetary Policies ◽  
Domestic Debt ◽  
Perceptions And Expectations ◽  
Ultimate Objective ◽  
The Impact

Fiscal policy concerned with the government’s choice regarding the optimal use of taxation and government spending to control and adjust the aggregate demand in the economy. Monetary policy refers to the central bank’s control regarding the availability of credit in the economy to achieve the objective of price stability and this control can be exerted through money supply and interest rate channel. The ultimate objective of the both policies is to maximise the overall welfare of the society which can be achieved by keeping the inflation rate low and employment at its potential level. There are number of channels in which fiscal policy can impinge on monetary policy. An expansionary fiscal policy leads to an expansionary monetary policy, which may in turn fuel inflation and appreciate the domestic currency and that cause deterioration in the balance of payments. On the other hand if government finances the deficit through the markets (in a non-monetary way) then the fear of crowding out of the private sector arise in the economy. On external side when a country is depending on foreign funding of domestic debt, this results in deterioration in the exchange rate and balance of payment. Another more direct channel of fiscal policy is the impact of indirect taxes on price level. Besides this, perceptions and expectations of the general public about the large and on going budget deficits and resultant borrowings requirements may prompt a lack of confidence in the economic prospects. At the same time when people realise that government is borrowing for its own good, they will conclude that this can lead to higher taxation levels in future and consequently they consume less and save more, that is so called Recardian equivalence.

scholarly journals Fiscal Policy, Monetary Policy and Price Volatility: Evidence from an Emerging Economy

2021 ◽  
Vol 12 (1) ◽  
pp. 57-70
Author(s):  
Le Thanh Tung
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Granger Causality ◽  
Impulse Response Function ◽  
Price Volatility ◽  
Granger Causality Test ◽  
Causality Test ◽  
Study Results ◽  
The Government ◽  
The Impact

Vietnam is an Asian emerging country, which now is ranked in the group of the fastest-gro- wing economies worldwide. However, this economy has faced galloping inflation in recent years. So the Vietnamese experience is a valuable reference for the policymakers in the developing world in order to successfully control price volatility. Our study applies the Vector autoregressive method, the Johansen cointegration test, and the Granger causality test to examine the impact of fiscal and monetary policy on price volatility in Vietnam with a quarterly data sample collected over the period from 2004 to 2018. The study results confirm the existence of a long-term cointegration relationship between these policies and price volatility in Vietnam. Besides, the variance decomposition and impulse response function also show that the impact of these policies on inflation is clear, however, the fiscal policy more strongly affects inflation than the monetary policy. Finally, the Granger causality test also indicates one-way causality relationships from the government expenditure as well as the exchange rate to price volatility in the study period.

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