Fiscal and Monetary Policy Interaction: A Simulation-Based Analysis of a Two-Country New Keynesian DSGE Model with Heterogeneous Households

2010 ◽  
Author(s):  
Marcos Valli ◽  
Fabia Aparecida Carvalho
Keyword(s):  
Monetary Policy ◽  
New Keynesian ◽  
Dsge Model ◽  
Policy Interaction ◽  
Simulation Based ◽  
Fiscal And Monetary 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.

Optimal fiscal and monetary policy under different fiscal instruments

2020 ◽  
Vol 48 (1) ◽  
pp. 167-190
Author(s):  
Mehrab Kiarsi
Keyword(s):  
Monetary Policy ◽  
Inflation Rate ◽  
Dynamic Properties ◽  
Sticky Prices ◽  
New Keynesian ◽  
Content Type ◽  
Friedman Rule ◽  
Keynesian Model ◽  
Fiscal And Monetary Policy ◽  
Cash In Advance

PurposeThe paper includes characterizing Ramsey policy in a cash-in-advance monetary model, under flexible and sticky prices, and with different fiscal instruments.Design/methodology/approachThe paper analytically and numerically characterizes the dynamic properties of Ramsey allocations. The author computes dynamics by solving second-order approximations to the Ramsey planner’s policy functions around a non-stochastic Ramsey steady state.FindingsThe Friedman rule is not mainly optimal in a cash-in-advance model with distorting taxes. The Ramsey-optimal policy with both taxes on income and consumption calls for a high inflation rate that is extremely volatile, despite the fact that changing prices is costly.Practical implicationsThe optimality of zero nominal interest rate under flexible prices in monetary models is not mainly the case and quite depends on the preferences. The optimality of a zero inflation rate under sticky prices also very much depends on the assumed set of fiscal instruments.Originality/valueThe non-optimality of the Friedman rule under flexible prices is quite new. Moreover, studying the optimal fiscal and monetary policy in a New Keynesian model with a rich set of fiscal instruments is also quite original.

scholarly journals New Keynesian Liquidity Trap and Conventional Fiscal Stance: An Estimated DSGE Model

2019 ◽  
Vol 33 (1) ◽  
pp. 152-169
Author(s):  
Olatunji Abdul Shobande ◽  
Oladimeji Tomiwa Shodipe
Keyword(s):  
United States ◽  
Monetary Policy ◽  
Fiscal Policy ◽  
The United States ◽  
New Keynesian ◽  
Transmission Channel ◽  
Dsge Model ◽  
Liquidity Trap ◽  
Exogenous Shock ◽  
Macroeconomic Variables

Abstract The study investigates the effect of New Keynesian liquidity trap on fiscal stance in the United States, United Kingdom and Japan economies. We developed our DSGE model in the context of an optimal and persistent interactive fiscal policy, which allows us to track the transmission channel through which shocks are distributed among real economic variables. The evidence suggests that zero lower bound mitigates the ability of monetary policy to absorb the effect of exogenous shock on the macroeconomic variables while expansionary fiscal policy was able to absorb the shock persistence transmitted from the nominal interest rate.

scholarly journals Monetary Policy Interdependency in Fisher Effect: A Comparative Evidence

2021 ◽  
Vol 10 (1) ◽  
pp. 203-226
Author(s):  
Olatunji Abdul Shobande ◽  
Oladimeji Tomiwa Shodipe
Keyword(s):  
South Africa ◽  
Monetary Policy ◽  
Financial Market ◽  
New Keynesian ◽  
Policy Response ◽  
Fisher Effect ◽  
Dsge Model ◽  
Financial Variables ◽  
Policy Responses ◽  
Macroeconomic Fundamentals

Abstract In this paper, we examine the ability of Fisher effect to describe the subjective behaviour of monetary policy responses for nations constrained by global factors. We developed and estimated a simple DSGE model for appraising the consequence of an integrated financial market predictor on national monetary policy response in Africa’s largest economies – Nigeria and South Africa. The paper integrated the theoretical intuition of the famous Fisher effect on the New Keynesian DSGE model with global predictors to describe national monetary policy response as it influence domestic financial variables and macroeconomic fundamentals. Simulations show that the existence of global factors threatens the abilities of national monetary policy to predict financial variables and macroeconomic fundamentals in their economies.

scholarly journals Application of the Bayesian New Keynesian DSGE Model to Polish Macroeconomic Data

2021 ◽  
Vol 32 (2) ◽  
pp. 140-153
Author(s):  
Janusz Sobieraj ◽  
Dominik Metelski
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Significant Degree ◽  
New Keynesian ◽  
Output Gap ◽  
Monetary Policy Shocks ◽  
Dsge Model ◽  
Nominal Interest Rates ◽  
Policy Shocks ◽  
Dynamic Stochastic

In the paper we estimate a simple New Keynesian Dynamic Stochastic General Equilibrium NK DSGE model on the basis of Polish macro data from the period 2000-2019. The model is specified similarly to Galí (2008) with the use of the Bayesian approach. The NK DSGE model combines the advantages of both structural models and time-series models and, therefore, shows a significant degree of alignment with empirical data. The Bayesian estimation is based on the prior distribution of the model input parameters, which are later compared with the posteriors. The results obtained allow for assessing the persistence of responses to technological, inflationary and monetary policy shocks. On the basis of the NK DSGE model, we formulate a perception of macroeconomic interactions, e.g. nominal interest rates’ association with inflation and the output gap. In other words, the NK DSGE model provides a better understanding of the relationship between interest rates, inflation and the output gap. This in turn makes it easier to understand the monetary policy response function.

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