IDEAS home Printed from https://ideas.repec.org/a/bla/buecrs/v55y2003i1p21-36.html
   My bibliography  Save this article

Some Fiscal Implications of Monetary Policy

Author

Listed:
  • Harris Dellas
  • Kevin D. Salyer

Abstract

We study the implications of alternative monetary targeting procedures for real interest rates and economic activity. We find that countercyclical monetary policy rules lead to higher real interest rates, higher average tax rates, lower output but lower variability of tax rates and consumption relative to procyclical rules. For a country with a high level of public debt (e.g. Italy), the adoption of a countercyclical procedure such as interest rate pegging may conceivably raise public debt servicing costs by more than half a percentage point of GNP. Our analysis suggests that the current debate on the targeting procedures of the European Central Bank ought to be broadened to include a discussion of the fiscal implications of monetary policy.

Suggested Citation

  • Harris Dellas & Kevin D. Salyer, 2003. "Some Fiscal Implications of Monetary Policy," Bulletin of Economic Research, Wiley Blackwell, vol. 55(1), pages 21-36, January.
    • Handle: RePEc:bla:buecrs:v:55:y:2003:i:1:p:21-36
    DOI: 10.1111/1467-8586.00160
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1467-8586.00160
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1467-8586.00160?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
    2. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
    3. Cooley, Thomas F & Hansen, Gary D, 1989. "The Inflation Tax in a Real Business Cycle Model," American Economic Review, American Economic Association, vol. 79(4), pages 733-748, September.
    4. Greenwood, Jeremy & Huffman, Gregory W., 1987. "A dynamic equilibrium model of inflation and unemployment," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 203-228, March.
    5. Bohn, Henning, 1988. "Why do we have nominal government debt?," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 127-140, January.
    6. Chari, V V & Christiano, Lawrence J & Kehoe, Patrick J, 1991. "Optimal Fiscal and Monetary Policy: Some Recent Results," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 519-539, August.
    7. LeRoy, Stephen F, 1984. "Nominal Prices and Interest Rates in General Equilibrium: Endowment Shocks," The Journal of Business, University of Chicago Press, vol. 57(2), pages 197-213, April.
    8. Aschauer, David & Greenwood, Jeremy, 1983. "A Further Exploration in the Theory of Exchange Rate Regimes," Journal of Political Economy, University of Chicago Press, vol. 91(5), pages 868-875, October.
    9. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, March.
    10. repec:aei:rpbook:52819 is not listed on IDEAS
    11. LeRoy, Stephen F, 1984. "Nominal Prices and Interest Rates in General Equilibrium: Money Shocks," The Journal of Business, University of Chicago Press, vol. 57(2), pages 177-195, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Oscar Jorda & Kevin Salyer, 2003. "The Response of Term Rates to Monetary Policy Uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 941-962, October.
    2. Oscar Jorda & Kevin Salyer, 2003. "The Response of Term Rates to Monetary Policy Uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 941-962, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Harris Dellas & Kevin D. Salyer, 2003. "Some Fiscal Implications of Monetary Policy," Bulletin of Economic Research, Wiley Blackwell, vol. 55(1), pages 21-36, January.
    2. Mavikela Nomahlubi & Mhaka Simba & Phiri Andrew, 2019. "The Inflation-Growth Relationship in SSA Inflation-Targeting Countries," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 64(2), pages 84-102, August.
    3. Lawrence J. Christiano, 1991. "Modeling the liquidity effect of a money shock," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 15(Win), pages 3-34.
    4. De Gregorio, Jose, 1993. "Inflation, taxation, and long-run growth," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 271-298, June.
    5. Sellin, Peter, 1998. "Monetary Policy and the Stock Market: Theory and Empirical Evidence," Working Paper Series 72, Sveriges Riksbank (Central Bank of Sweden).
    6. Mothuti Gosego & Phiri Andrew, 2018. "Inflation-Growth Nexus in Botswana: Can Lower Inflation Really Spur Growth in the Country?," Global Economy Journal, De Gruyter, vol. 18(4), pages 1-11, December.
    7. Lawrence J. Christiano & Martin S. Eichenbaum, 1992. "Liquidity effects, the monetary transmission mechanism, and monetary policy," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 16(Nov), pages 2-14.
    8. Ralph Chami & Thomas F. Cosimano & Connel Fullenkamp, 2001. "Capital Trading, Stock Trading, and the Inflation Tax on Equity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 575-606, July.
    9. Jones, Larry E. & Manuelli, Rodolfo E., 1995. "Growth and the effects of inflation," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1405-1428, November.
    10. Kraft, Holger & Weiss, Farina, 2017. "Consumption-Portfolio Choice with Preferences for Cash," SAFE Working Paper Series 181, Leibniz Institute for Financial Research SAFE.
    11. Derek Laing & Victor E. Li & Ping Wang, 1998. "Inflation and economic activity in a multiple matching model of money," Working Papers 1998-018, Federal Reserve Bank of St. Louis.
    12. Rahmati, Mohammad Hossein & Ebrahimian, Mehran & Madanizadeh, Seyed Ali, 2021. "Dynamic effects of trade barriers with speculation on foreign currency: The case of Iran," International Economics, Elsevier, vol. 167(C), pages 151-173.
    13. Kraft, Holger & Weiss, Farina, 2019. "Consumption-portfolio choice with preferences for cash," Journal of Economic Dynamics and Control, Elsevier, vol. 98(C), pages 40-59.
    14. Robert G. King & Mark W. Watson, 1997. "Testing long-run neutrality," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 69-101.
    15. Lahiri, Radhika, 2002. "The Inflation Tax, Variable Time Preference, And The Business Cycle," Macroeconomic Dynamics, Cambridge University Press, vol. 6(4), pages 496-522, September.
    16. Joseph H. Haslag, 1994. "The effects of monetary policy in a model with reserve requirements," Working Papers 9415, Federal Reserve Bank of Dallas.
    17. Dave Andolfatto & Scott Hendry & Kevin Moran, 2004. "Labour markets, liquidity, and monetary policy regimes," Canadian Journal of Economics, Canadian Economics Association, vol. 37(2), pages 392-420, May.
    18. Holman, Jill A. & Rioja, Felix K., 2001. "International transmission of anticipated inflation under alternative exchange-rate regimes," Journal of International Money and Finance, Elsevier, vol. 20(4), pages 497-519, August.
    19. Lahiri, Amartya, 2001. "Exchange rate based stabilizations under real frictions: The role of endogenous labor supply," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1157-1177, August.
    20. Bae, Sang-Kun & Ratti, Ronald A., 2000. "Long-run neutrality, high inflation, and bank insolvencies in Argentina and Brazil," Journal of Monetary Economics, Elsevier, vol. 46(3), pages 581-604, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:buecrs:v:55:y:2003:i:1:p:21-36. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0307-3378 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.