scholarly journals Present-biased Government, Creative Accounting and a Pitfall in Balanced Budget Rules

2021 ◽  
Author(s):  
Marcela De Castro-Valderrama
Keyword(s):  
General Equilibrium ◽  
Interest Rates ◽  
Equilibrium Model ◽  
Hyperbolic Discounting ◽  
Goods And Services ◽  
Creative Accounting ◽  
Welfare Losses ◽  
Fiscal Rule ◽  
Balanced Budget Rule ◽  
Balanced Budget

I propose a general equilibrium model with a quasi-hyperbolic discounting government that optimally decides upon using creative accounting in order to evaluate a balanced budget rule and a debt rule. In that context, I find that a binding balanced budget rule could fail to properly constrain public overindebtedness when government uses creative accounting while a debt rule is effective, since targets are set on total public liabilities. Results suggest that a balanced budget fiscal rule can also deteriorate welfare due to the higher interest rates derived from doing operations under the line, implying future expenditure cuts that are harmful for households, who value public goods and services. A debt rule is also preferred for its capacity to reverse some welfare losses generated by the present-biased government.

scholarly journals Understanding Benign Liquidity Traps: The Case of Japan

2017 ◽  
Vol 18 (3) ◽  
pp. 267-282 ◽  
Author(s):  
Stefan Homburg
Keyword(s):  
Monetary Policy ◽  
General Equilibrium ◽  
Interest Rates ◽  
Equilibrium Model ◽  
General Equilibrium Model ◽  
Anglo Saxon ◽  
Liquidity Trap ◽  
Approach Zero

Abstract Japan has been in a benign liquidity trap since the 1990s. In a benign liquidity trap, interest rates approach zero and monetary policy is ineffective but output and employment perform decently. Such a pattern contradicts traditional macro theories. This paper introduces a monetary general equilibrium model that is compatible with Japan’s performance and resolves puzzles associated with liquidity traps. Possible conclusions for Anglo-Saxon countries and eurozone members are also discussed.

scholarly journals A GENERAL EQUILIBRIUM MODEL OF THE TERM STRUCTURE OF INTEREST RATES UNDER REGIME-SWITCHING RISK

2005 ◽  
Vol 08 (07) ◽  
pp. 839-869 ◽  
Author(s):  
SHU WU ◽  
YONG ZENG
Keyword(s):  
General Equilibrium ◽  
Interest Rates ◽  
Term Structure ◽  
Risk Premium ◽  
Equilibrium Model ◽  
Regime Switching ◽  
Yield Curve ◽  
Closed Form Solution ◽  
Form Solution ◽  
General Equilibrium Model

This paper develops a general equilibrium model of the term structure of interest rates in the presence of the systematic risk of regime shifts. The model elucidates the economic nature of the regime-shift risk premium and introduces a new source of time-variation in bond returns. A closed-form solution for the term structure of interest rates is obtained under an affine model using log-linear approximation. The model is estimated by Efficient Method of Moments. The regime-switching risk is found to be statistically significant and mostly affect the long-end of the yield curve.

scholarly journals The deadweight cost of war: An illustrative CGE

2011 ◽  
Vol 6 (2) ◽  
Author(s):  
John Gilbert ◽  
Krit Linananda ◽  
Tanigawa Takahiko ◽  
Edward Tower ◽  
Alongkorn Tuncharoenlarp
Keyword(s):  
General Equilibrium ◽  
Interest Rates ◽  
Equilibrium Model ◽  
Computable General Equilibrium ◽  
Full Employment ◽  
Computable General Equilibrium Model ◽  
General Equilibrium Model ◽  
Small Scale ◽  
Cost Of War ◽  
The Cost

War is costly both because of the resources used up and because of the inefficiency introduced by the higher taxes necessary to finance them. War has been justified by its ability to help an economy achieve full employment. Robert Barro argues that war increases employment because folks work harder to smooth consumption and take advantage of the higher interest rates caused by the scarcity that accompanies war. In his view, it does not reflect putting previously wasted resources to work. This article describes the simulations of a small-scale intertemporal computable general equilibrium model. It illustrates that the cost of war depends on how it is financed, and that the increase in employment that it generates may be explained by the logic that Barro offers. Our model can be loaded into GAMS, a program which is available free of charge online, so readers can themselves simulate variations of the model.

A NOTE ON LIQUIDITY AND REAL EQUILIBRIUM INTEREST RATES

2006 ◽  
Vol 10 (3) ◽  
pp. 426-438
Author(s):  
LIVIO STRACCA
Keyword(s):  
General Equilibrium ◽  
Interest Rates ◽  
Financial Market ◽  
Equilibrium Model ◽  
Analytical Framework ◽  
General Equilibrium Model ◽  
Purchasing Power ◽  
Rates Of Return ◽  
Financial Instrument ◽  
Over Time

This note proposes a general equilibrium model with heterogeneous households and a financial market where each financial instrument provides liquidity services in addition to enabling a transfer of purchasing power over time. Importantly, liquidity services may be asymmetric according to whether the financial instrument is held as an asset or as a liability, and are also agent-specific. The main purpose of the study is to develop an analytical framework and a language for evaluating the effect of (broadly defined) liquidity factors on equilibrium rates of return.

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