Tunisian Fiscal Policy Effects in a New Keynesian Model With Price Rigidity and Monopolistic Competition

2021 ◽  
Vol 10 (1) ◽  
pp. 13-31
Author(s):  
Slah Slimani
Keyword(s):  
Fiscal Policy ◽  
Interest Rate ◽  
Private Consumption ◽  
Monopolistic Competition ◽  
Aggregate Demand ◽  
Public Spending ◽  
New Keynesian ◽  
Keynesian Model ◽  
The Business Cycle ◽  
The Interest Rate

This paper applies a multivariate neo-Keynesian DSGE model to study the effects of changes in Tunisian public spending on the business cycle, private consumption, wages, interest rate, and inflation rate in the presence of monopolistic competition and price nominal short-term rigidity. The main finding of this paper shows a Tunisian pro-cyclical fiscal policy. Expansionary public spending has two initial effects. The output increases due to the usual increase in labor supply, and aggregate demand increases due to an incomplete crowding out of private consumption. By increasing aggregate demand, the central bank increases the nominal interest rate, which moves in concert with inflation in order to counteract inflationary pressures. Households reduce their consumer spending at the same time as the real interest rate increases. Some companies are responding to the change in the interest rate by reducing their expenses, their employment demands, and their capital utilization rates.

scholarly journals Taxes and the Structure of Production

1998 ◽  
Vol 16 (2) ◽  
pp. 145-159 ◽  
Author(s):  
Walter Block
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Interest Rate ◽  
Business Cycle ◽  
Time Preference ◽  
Causal Relation ◽  
Austrian Business Cycle ◽  
The Business Cycle ◽  
The Interest Rate ◽  
Structure Of Production

Abstract In Austrian theory, the business cycle is caused by expansive monetary policy, which artificially lowers the interest rate below equilibrium rates, necessarily lengthening the structure of production. Can tax alterations also cause an Austrian business cycle? Only if they affect time preference rates, the determinant of the shape of the Hayekian triangle. It is the contention of this paper that changes in taxes possibly can (but need not) impact time preference rates. Thus there may be a causal relation between fiscal policy and the business cycle, but this is not a necessary connection, as there is between monetary policy and the business cycle. This is contentious, since some Austrians argue that there is a praxeological link between tax policy and time preference rates.

Money and Credit in the New Keynesian Model

2014 ◽  
Vol 65 (3) ◽  
Author(s):  
Sven Offick ◽  
Hans-Werner Wohltmann
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Banking Sector ◽  
New Keynesian ◽  
Credit Channel ◽  
New Keynesian Model ◽  
Static Approximation ◽  
Keynesian Model ◽  
The Interest Rate

AbstractThis paper integrates a money and credit market into a static approximation of the baseline New Keynesian model based on a money-and-credit-in-the-utility approach, in which real balances and borrowing contribute to the household’s utility. In this framework, the central bank has no direct control over the interest rate on bonds. Instead, the central bank’s instrument variables are the monetary base and the refinancing rate, i. e. the rate at which the central bank provides loans to the banking sector. Our approach gives rise to a credit channel, in which current and expected future interest rates on the bond and loan market directly affect current goods demand. The credit channel amplifies the output effects of isolated monetary disturbances. Taking changes in private (inflation and interest rate) expectations into account, we find that - contrarily to BERNANKE and BLINDER (1988) - the credit channel may also dampen the output effects of monetary disturbances. The expansionary effects of a monetary expansion may be substantially diminished if the monetary disturbance is accompanied by a contractionary credit shock. In a dynamic version of our model, in which expectations are formed endogenously, we find that the credit channel amplifies output responses.

scholarly journals INFORMATION VALUE OF THE INTEREST RATE AND THE ZERO LOWER BOUND

2019 ◽  
Vol 24 (7) ◽  
pp. 1758-1784
Author(s):  
Sang Seok Lee
Keyword(s):  
Interest Rate ◽  
Lower Bound ◽  
Information Structure ◽  
Information Value ◽  
New Keynesian ◽  
Zero Lower Bound ◽  
Keynesian Model ◽  
State Of The Economy ◽  
The Interest Rate ◽  
The Cost

Why is a zero lower bound episode long-lasting and disruptive? This paper proposes the interruption of information flow from the central bank’s interest rate decision to the private sector as a channel by which the destabilizing effect of the zero lower bound constraint on the nominal interest rate is amplified. This mechanism is incorporated into the new Keynesian model by modifying its information structure. This paper shows that the information loss at the zero lower bound can increase (a) the duration of the zero lower bound episodes and (b) the size of deflation and output gap loss. The result in this paper demonstrates that enhanced information sharing by the central bank about the state of the economy can be effective at alleviating the cost of the zero lower bound.

Interest Rate Liberalization and Fiscal Policy in China: A New Keynesian DSGE Model

2014 ◽  
Vol 18 (6) ◽  
pp. 985-991
Author(s):  
Bing Xu ◽  
◽  
Qiuqin He ◽  
Xiaowen Hu ◽  
Shangfeng Zhang ◽  
...  
Keyword(s):  
Fiscal Policy ◽  
Interest Rate ◽  
New Keynesian ◽  
Crowding Out ◽  
Dsge Model ◽  
Interest Rate Liberalization ◽  
Policy Shocks ◽  
Dynamic Stochastic ◽  
The Interest Rate ◽  
Positive Effect

By building a new Keynesian dynamic stochastic general equilibrium (DSGE) model, we analyze the effect of interest rate liberalization on fiscal policy. First, we find that when the interest rate increases, technology shocks, monetary policy shocks, and fiscal policy shocks can effectively stabilize economic fluctuations. Second, when the interest rate rises, fiscal policy enhances the positive effect on output first, with decreasing the negative effect on output later. Third, fiscal policy increases the original crowding-out effect on consumption and investment. However, this increase in the crowding-out effect does not restrain the positive effect of fiscal policy on output, which benefits from interest rate liberalization.

scholarly journals The IS Curve and Monetary Policy Transmission in India: A New Keynesian Perspective

2018 ◽  
Vol 12 (1) ◽  
pp. 41-66 ◽  
Author(s):  
Bhavesh Salunkhe ◽  
Anuradha Patnaik
Keyword(s):  
Interest Rate ◽  
Aggregate Demand ◽  
Jel Classification ◽  
New Keynesian ◽  
Crude Oil Prices ◽  
External Demand ◽  
Policy Transmission ◽  
Empirical Performance ◽  
The Interest Rate ◽  
The Impact

The present study assesses the empirical performance of the new Keynesian IS model by estimating the standard as well as extended specifications of both the backward-looking and hybrid models in India over the period 1998Q1 to 2015Q4. It is found that the backward-looking IS model fits the data quite well in comparison with the hybrid model. The link between the policy rate and output gap appeared to be a bit stronger in the extended backward-looking IS model, as the interest rate coefficient is larger. Also, besides the interest rate, the real exchange rate, external demand and crude oil prices also have an impact on aggregate demand. The results suggest that the standard specification of the IS curve is inadequate to estimate the impact of the interest rate on aggregate demand and therefore a broader framework which accounts for additional variables besides the interest rate may be required. JEL Classification: E520, E120, C360, E510

Taylor rule and monetary policy transmission mechanism in a new keynesian economy

2018 ◽  
Vol 14 (27) ◽  
pp. 24
Author(s):  
Christopher Cernichiaro Reyna
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Price Index ◽  
Aggregate Demand ◽  
Transmission Mechanism ◽  
New Keynesian ◽  
Keynesian Model ◽  
Policy Transmission ◽  
Monetary Policy Transmission Mechanism

This paper estimates two SVAR models to assess Mexican Monetary policy rate for the period 2000-2015, which are recursively identifid according to Gali and Monacelli (2005) model. This paper shows that monetary policy rate responds to GDP, infltion and exchange rate as Taylor’s Rule predicts. When controlling for General Consumer’s Price Index infltion, monetary policy barely affcts aggregate demand even if exchange rate appreciates, nevertheless GDP diminish after contractive monetary policy takes place. Infltion rate lightly increases after interest rate rises, which does not coincide with New Keynesian predictions. A second model is estimated controlling for underlying infltion. Its results exhibit more interest rate sensitive consumption and net exports, while real exchange rate and GDP change as New Keynesian model predicts. Infltion decreases after monetary policy rise but its flctuations are close to zero. According to Gali (2008) such small changes indicate nominal rigidities existence.

scholarly journals On the Limits of Macroprudential Policy

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Marcin Kolasa
Keyword(s):  
Monetary Policy ◽  
Policy Instruments ◽  
New Keynesian ◽  
Output Volatility ◽  
Macroprudential Policy ◽  
Collateral Constraints ◽  
Keynesian Model ◽  
Additional Stabilization ◽  
The Interest Rate

AbstractThis paper studies how macroprudential policy tools applied to the housing market can complement the interest rate-based monetary policy in achieving one additional stabilization objective, defined as keeping either economic activity or credit at some exogenous (and possibly time-varying) levels. We show analytically in a canonical New Keynesian model with housing and collateral constraints that using the loan-to-value (LTV) ratio, tax on credit or tax on property as additional policy instruments does not resolve the inflation-output volatility tradeoff. Perfect targeting of inflation and credit with monetary and macroprudential policy is possible only if the role of housing debt in the economy is sufficiently small. The identified limits to the considered policies are related to their predominantly intertemporal impact on decisions made by financially constrained agents, making them poor complements to monetary policy, which also operates at an intertemporal margin. These limits can be overcome if macroprudential policy is instead designed such that it sufficiently redistributes income between savers and borrowers.

The Case for Imposing Cashlessness: A Review Article

2018 ◽  
Vol 56 (4) ◽  
pp. 1587-1591
Author(s):  
Neil Wallace
Keyword(s):  
Fiscal Policy ◽  
Interest Rate ◽  
Lower Bound ◽  
Central Bank ◽  
Review Article ◽  
Zero Lower Bound ◽  
Illegal Activity ◽  
The Interest Rate

In The Curse of Cash, Rogoff (2016) makes two arguments. (i) Large denominations of currency are primarily used for illegal activity. Therefore, eliminating them would have benefits that far outweigh the costs in terms of lost seigniorage. (ii) The zero lower bound (ZLB) on the interest rate implied by the possibility of holding large amounts of currency is a costly constraint on central-bank policy. The best way to eliminate the ZLB is to eliminate all but small denominations of currency, ten dollars and lower, and to have those be in the form of coins. The style of the book, no models and no symbols, works fairly well for (i), but not so well for (ii). For (ii), the author is unclear about a crucial matter: what fiscal policy accompanies alternative interest-rate settings chosen by the central bank? ( JEL E26, E42, E43, E52, E58, E62)

Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach*

2012 ◽  
Vol 127 (3) ◽  
pp. 1469-1513 ◽  
Author(s):  
Gauti B. Eggertsson ◽  
Paul Krugman
Keyword(s):  
Fiscal Policy ◽  
Great Depression ◽  
Aggregate Demand ◽  
New Keynesian ◽  
Liquidity Trap ◽  
The Great Depression ◽  
Lost Decade ◽  
Debt Deflation

Abstract In this article we present a simple new Keynesian–style model of debt-driven slumps—that is, situations in which an overhang of debt on the part of some agents, who are forced into rapid deleveraging, is depressing aggregate demand. Making some agents debt-constrained is a surprisingly powerful assumption. Fisherian debt deflation, the possibility of a liquidity trap, the paradox of thrift and toil, a Keynesian-type multiplier, and a rationale for expansionary fiscal policy all emerge naturally from the model. We argue that this approach sheds considerable light both on current economic difficulties and on historical episodes, including Japan’s lost decade (now in its 18th year) and the Great Depression itself.

Sign in / Sign up

Export Citation Format

Share Document