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In previous work (Eggertsson and Woodford, 2003), we characterized the optimal conduct of monetary policy when a real disturbance causes the natural rate of interest to be temporarily negative, so that the zero lower bound on nominal interest rates binds, and showed that commitment to a...
Persistent link: https://www.econbiz.de/10013102000
We provide an introduction to optimal fiscal and monetary policy using the primal approach to optimal taxation. We use this approach to address how fiscal and monetary policy should be set over the long run and over the business cycle. We find four substantive lessons for policymaking: Capital...
Persistent link: https://www.econbiz.de/10013230363
This paper demonstrates how time consistency of the Ramsey policy - the optimal fiscal and monetary policy under commitment - can be achieved. Each government should leave its successor with a unique maturity structure for the nominal and indexed debt, such that the marginal benefit of a...
Persistent link: https://www.econbiz.de/10013232768
basis of familiar economic theory, the effect of imposing the government budget constraint is to make the real …
Persistent link: https://www.econbiz.de/10013225039
With integrated trade and financial markets, a collapse in aggregate demand in a large country can cause 'natural real interest rates' to fall below zero in all countries, giving rise to a global 'liquidity trap'. This paper explores the policy choices that maximize the joint welfare of all...
Persistent link: https://www.econbiz.de/10013123644
procedure. It is argued in this paper that part of the very large increase in interest rate volatility which resulted from the …
Persistent link: https://www.econbiz.de/10013220958
At the zero lower bound, the central bank's inability to offset shocks endogenously generates volatility. In this …-contingent optimal monetary and fiscal policies can attenuate this endogenous volatility by stabilizing the distribution of future … outcomes. Fluctuations in uncertainty and the zero lower bound help our model match the unconditional and stochastic volatility …
Persistent link: https://www.econbiz.de/10013002240
One important channel through which real interest rates affect aggregate demand is consumer expenditure on durable goods. This paper examines empirically the link between interest rates and consumer durables. Solving for the decision rule relating income and interest rates to consumer demand is...
Persistent link: https://www.econbiz.de/10013246298
durable goods are traded across countries. Our model can match the business cycle statistics on the volatility and comovement …
Persistent link: https://www.econbiz.de/10012772731
The demand for durable goods is more cyclical than that for nondurable goods and services. Consequently, the cash flows and stock returns of durable-good producers are exposed to higher systematic risk. Using the benchmark input-output accounts of the National Income and Product Accounts, we...
Persistent link: https://www.econbiz.de/10012760299