scholarly journals Fiscal Consolidation in an Open Economy

2012 ◽  
Vol 102 (3) ◽  
pp. 186-191 ◽  
Author(s):  
Christopher J Erceg ◽  
Jesper Lindé
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Open Economy ◽  
Small Open Economy ◽  
Currency Union ◽  
New Keynesian ◽  
Zero Lower Bound ◽  
Fiscal Consolidation ◽  
Monetary Regimes ◽  
The Impact

his paper uses a New Keynesian DSGE model of a small open economy to compare how the effects of fiscal consolidation differ depending on whether monetary policy is constrained by currency union membership or by the zero lower bound on policy rates. We show that there are important differences in the impact of fiscal shocks across these monetary regimes that depend both on the duration of the zero lower bound and on features that determine the responsiveness of inflation.

WHY JOIN A CURRENCY UNION? A NOTE ON THE IMPACT OF BELIEFS ON THE CHOICE OF MONETARY POLICY

2011 ◽  
Vol 16 (2) ◽  
pp. 320-334 ◽  
Author(s):  
Federico Ravenna
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Policy Maker ◽  
Small Open Economy ◽  
Optimal Choice ◽  
New Keynesian ◽  
Monetary Policies ◽  
Keynesian Model ◽  
The Impact ◽  
Better Than

We argue that a fixed exchange rate can be an optimal choice even if a policy maker could commit to the first-best monetary policy whenever the private sector's beliefs reflect incomplete information about the policy maker's dependability. This model implies that joining a currency area may be optimal for its impact not on the behavior of the policy maker, but on the beliefs of the private sector. Monetary policies are evaluated using a new Keynesian model of a small open economy solved under imperfect policy credibility. We quantify the minimum distance between announced policy and the private sector's beliefs that is necessary for a peg to perform better than an independent monetary policy when the policy maker can commit to the first-best policy.

scholarly journals Fiscal and monetary policy in new Keynesian DSGE models

2014 ◽  
Author(s):  
Πέτρος Βαρθαλίτης
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Open Economy ◽  
Small Open Economy ◽  
New Keynesian ◽  
Dsge Models ◽  
Dsge Model ◽  
Keynesian Model ◽  
Monetary And Fiscal Policy ◽  
Fiscal And Monetary Policy

This thesis is about monetary and fiscal policy in New Keynesian DSGE models. Chapter 2 presents the baseline New Keynesian DSGE model. Monetary policy is in the form of a simple interest rate Taylor-type policy rule, while fiscal policy is exogenous. Chapter 3 extends the model of Chapter 2 to include fiscal policy. Now, both monetary and fiscal policy are allowed to follow feedback rules. Chapter 4 sets up a New Keynesian model of a semi-small open economy with sovereign risk premia. Finally, Chapter 5 builds a New Keynesian DSGE model consisting of two heterogeneous countries participating in a monetary union.Throughout most of the thesis, policy is conducted via "simple", "implementable" and "optimized" feedback policy rules. Using such rules, the aim of policy is twofold: firslty, it aims to stabilize the economy when the latter is hit by shocks; secondly, it aims to improve the economy's resource allocation.

scholarly journals PERANAN KEBIJAKAN MONETER DALAM MENJAGA STABILITAS PEREKONOMIAN INDONESIA SEBAGAI RESPON TERHADAP FLUKTUASI PEREKONOMIAN DUNIA

2007 ◽  
Vol 9 (2) ◽  
pp. 145-177
Author(s):  
M. Maulana Al Arif ◽  
Achmad Tohari
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Open Economy ◽  
Small Open Economy ◽  
Monthly Data ◽  
Vector Autoregressive ◽  
The World ◽  
The Exchange Rate ◽  
The Impact

This paper analyzes the impact of the inflation and the world interest rate on the Indonesian economy and the effectiveness of the Indonesian central bank policy to adopt the domestic macroeconomic fluctuation.Assuming Indonesia as a small-open economy, the Stuctural Vector Autoregressive Model is utilized on the monthly data during the periode of 1999: 1 – 2004: 12 covering the main domestic macroeconomic indicator (output, price, money supply, interest rate and the exchange rate) and the world oil price and world interest rate as the disturbance source.The analysis provides 2 main results, first, the international variables do have impacts on the domestic variables fluctuation, implying the fragility of the domestic economy due to the external shock, second, the monetary policy is effective on supporting the economic growth and stabilizing the price level. However, the Bank Indonesia policy to stabilize the international shock via the exchange rate channel, contributes to a higher impact of the international shock on domestic interest rate.Keywords: monetary policy, business cycle, SVARJEL Classification: E52, E32, C32, F41

scholarly journals The Macroeconomics of Trend Inflation

2014 ◽  
Vol 52 (3) ◽  
pp. 679-739 ◽  
Author(s):  
Guido Ascari ◽  
Argia M. Sbordone
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
New Keynesian ◽  
Inflation Expectations ◽  
Positive Trend ◽  
Zero Lower Bound ◽  
Keynesian Model ◽  
Long Run ◽  
Trend Inflation ◽  
Inflation Targets

Most macroeconomic models for monetary policy analysis are approximated around a zero inflation steady state, but most central banks target an inflation rate of about 2 percent. Many economists have recently proposed even higher inflation targets to reduce the incidence of the zero lower bound constraint on monetary policy. In this survey, we show that the conduct of monetary policy should be analyzed by appropriately accounting for the positive trend inflation targeted by policymakers. We first review empirical research on the evolution and dynamics of U.S. trend inflation and some proposed new measures to assess the volatility and persistence of trend-based inflation gaps. We then construct a Generalized New Keynesian model that accounts for a positive trend inflation. In this model, an increase in trend inflation is associated with a more volatile and unstable economy and tends to destabilize inflation expectations. This analysis offers a note of caution regarding recent proposals to address the existing zero lower bound problem by raising the long-run inflation target. (JEL E12, E31, E32, E52, E58)

Delegating Optimal Monetary Policy Inertia in a Small-Open Economy

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Daisuke Ida ◽  
Mitsuhiro Okano
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Inflation Targeting ◽  
Small Open Economy ◽  
Central Banks ◽  
New Keynesian ◽  
Closed Economy ◽  
Optimal Monetary Policy ◽  
Nk Model ◽  
Exchange Rate Targeting

AbstractThis paper explores the delegation of several targeting regimes in a small open new Keynesian (NK) model and examines how central banks overcome stabilization bias in a small open NK model. Results indicate that both speed limit and real exchange rate targeting can carry the isomorphic properties of optimal monetary policy over to the closed economy. In addition, neither nominal income growth targeting nor CPI inflation targeting replicates a commitment policy. These findings provide new implications for optimal monetary policy in an open economy.

scholarly journals Structural Changes in Investment and the Waning Power of Monetary Policy

2021 ◽  
Author(s):  
Justin Bloesch ◽  
Jacob P. Weber
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Structural Changes ◽  
Small Open Economy ◽  
Value Added ◽  
New Keynesian ◽  
Secular Change ◽  
Labor Income ◽  
Labor Earnings ◽  
Investment Goods

We argue that secular change in both the production and composition of investment goods has weakened private investment's role in the transmission of monetary policy to labor earnings and consumption. We show analytically that fluctuations in the production of investment goods amplify the response of consumption to monetary policy shocks by varying labor income for hand-to-mouth agents. We document three secular changes that weaken this channel: (i) labor's share of value added in investment goods production has declined, (ii) the import share of investment goods has risen, and (iii) the composition of investment has shifted towards components that are less responsive to monetary policy. A small open economy, two agent New Keynesian model calibrated to match these facts implies a 38% and 26% weaker response of labor income and aggregate consumption, respectively, to real interest rate shocks in a 2010's economy relative to a 1960's economy.

scholarly journals INTERNALISASI SEKTOR PERBANKAN DALAM MODEL DSGE

2014 ◽  
Vol 17 (1) ◽  
pp. 23-60
Author(s):  
Harmanta Harmanta ◽  
Nur M. Adhi Purwanto ◽  
Fajar Oktiyanto Oktiyanto
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Banking Sector ◽  
Small Open Economy ◽  
Jel Classification ◽  
Capital Adequacy ◽  
Macroprudential Policy ◽  
Financial Friction ◽  
Policy Bank ◽  
The Impact

We build DSGE model for small open economy with financial friction in the form of collateral constrain on banking sector, designed for Indonesian economy. The constructed model is capable to simulate the monetary policy (Bank Indonesia rate) and macroprudential policy (reserve requirement, capital adequacy ratio – CAR, and loan to value – LTV). By internalizing banking sector into the model, this model also enable us to simulate the impact of any shock originated from banking sector.  Keywords: monetary policy, DSGE with banking sector, macroprudential policy JEL Classification: E32, E44, E52, E58 

scholarly journals MONETARY POLICY AND ASSET PRICES IN A SMALL OPEN ECONOMY: A FACTOR-AUGMENTED VAR ANALYSIS FOR SINGAPORE

2009 ◽  
Vol 05 (01) ◽  
pp. 0950004 ◽  
Author(s):  
HWEE KWAN CHOW ◽  
KEEN MENG CHOY
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Stock Prices ◽  
Vector Autoregression ◽  
Asset Price ◽  
Small Open Economy ◽  
Impulse Response Functions ◽  
Economic Time Series ◽  
Policy Shocks ◽  
The Impact

The ongoing global financial turmoil has revived the question of whether central bankers ought to tighten monetary policy pre-emptively in order to head off asset price misalignments before a sudden crash triggers financial instability. This study explores the issue of the appropriate monetary policy response to asset price swings in the small open economy of Singapore. Empirical analysis of monetary policy based on standard vector autoregression (VAR) models, unfortunately, is often hindered by the use of sparse information sets. To better reflect the extensive information monitored by Singapore's central bank, including global economic indicators, we augment a monetary vector autoregression (VAR) model with common factors extracted from a large panel dataset spanning 122 economic time series and the period 1980q1–2008q2. The resulting FAVAR model is used to assess the impact of monetary policy shocks on residential property and stock prices. Impulse response functions and variance decompositions suggest that monetary policy can potentially be used to lean against asset price booms in Singapore.

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