Advanced Search
MyIDEAS: Login to save this paper or follow this series

Monetary and Fiscal Policy Interactions in an Emerging Open Economy: A Non-Ricardian DSGE Approach

Contents:

Author Info

  • Aliya Algozhina

Abstract

The monetary and fiscal policy interactions have gained a new research interest after the 2008 crisis due to the global increase of fiscal debt. This paper constructs a macroeconomic model of joint fiscal and monetary policy for an emerging open economy taking into account its structural uniqueness. In particular, the two instruments of monetary policy, interest rate and foreign exchange intervention, the two instruments of fiscal policy, public consumption and public investment, the two types of households, optimizers and rule-of- thumb individuals, and a foreign debt via collateral constraint are modeled here in a single DSGE framework. The parameters are calibrated for the case of Hungary using data over 1995Q1-2011Q3. The impulse response functions to public investment, public consumption, and interest rate shocks reveal some unconventional findings in favor of the fiscal theory of price level as opposed to the traditional monetarist doctrine

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cerge-ei.cz/pdf/wp/Wp476.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp476.

as in new window
Length:
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:cer:papers:wp476

Contact details of provider:
Postal: P.O. Box 882, Politickych veznu 7, 111 21 Praha 1
Phone: (+420) 224 005 123
Fax: (+420) 224 005 333
Email:
Web page: http://www.cerge-ei.cz
More information through EDIRC

Related research

Keywords: monetary policy; fiscal policy; emerging open economy; collateral constraint; fiscal theory of price level;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
  2. Pierpaolo Benigno & Michael Woodford, 2003. "Optimal Monetary and Fiscal Policy: A Linear Quadratic Approach," NBER Working Papers 9905, National Bureau of Economic Research, Inc.
  3. Michael Woodford, 2010. "Simple Analytics of the Government Expenditure Multiplier," NBER Working Papers 15714, National Bureau of Economic Research, Inc.
  4. Lawrence J. Christiano & Martin Eichenbaum & Sergio Rebelo, 2010. "When is the government spending multiplier large?," CQER Working Paper, Federal Reserve Bank of Atlanta 2010-01, Federal Reserve Bank of Atlanta.
  5. Shu-Chun S. Yang & Nora Traum, 2011. "When Does Government Debt Crowd Out Investment?," 2011 Meeting Papers, Society for Economic Dynamics 479, Society for Economic Dynamics.
  6. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," NBER Working Papers 7571, National Bureau of Economic Research, Inc.
  7. Juraj Zeman & Matus Senaj, 2009. "DSGE Model-Slovakia," Working and Discussion Papers, Research Department, National Bank of Slovakia WP 3/2009, Research Department, National Bank of Slovakia.
  8. Tovar, Camilo Ernesto, 2009. "DSGE Models and Central Banks," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, Kiel Institute for the World Economy, vol. 3(16), pages 1-31.
  9. Cogan, John F. & Cwik, Tobias & Taylor, John B. & Wieland, Volker, 2009. "New Keynesian versus old Keynesian government spending multipliers," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7236, C.E.P.R. Discussion Papers.
  10. Gartner, Manfred, 1987. "Intervention Policy under Floating Exchange Rates: An Analysis of the Swiss Case," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 54(216), pages 439-53, November.
  11. Francisco J. Buera & Benjamin Moll, 2012. "Aggregate Implications of a Credit Crunch," NBER Working Papers 17775, National Bureau of Economic Research, Inc.
  12. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, American Economic Association, vol. 97(3), pages 586-606, June.
  13. Jagjit S. Chadha & Charles Nolan, 2004. "Optimal Simple Rules for the Conduct of Monetary and Fiscal Policy," CDMA Working Paper Series, Centre for Dynamic Macroeconomic Analysis 200406, Centre for Dynamic Macroeconomic Analysis.
  14. Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2004. "Balance Sheets and Exchange Rate Policy," American Economic Review, American Economic Association, American Economic Association, vol. 94(4), pages 1183-1193, September.
  15. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2005. "Sudden Stops and Output Drops," Levine's Bibliography 122247000000000880, UCLA Department of Economics.
  16. Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, The MIT Press, edition 3, volume 1, number 0262013770, December.
  17. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(2), pages 211-48, April.
  18. Schmitt-Grohe, Stephanie & Uribe, Martin, 2003. "Closing small open economy models," Journal of International Economics, Elsevier, Elsevier, vol. 61(1), pages 163-185, October.
  19. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 23(2), pages 177-200, March.
  20. Giovanni Dell'Ariccia & Olivier J. Blanchard & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," IMF Staff Position Notes, International Monetary Fund 2010/03, International Monetary Fund.
  21. Cochrane, John H., 2011. "Understanding policy in the great recession: Some unpleasant fiscal arithmetic," European Economic Review, Elsevier, Elsevier, vol. 55(1), pages 2-30, January.
  22. Stephanie Schmitt-Grohe & Martin Uribe, 2004. "Optimal Simple and Implementable Monetary and Fiscal Rules," NBER Working Papers 10253, National Bureau of Economic Research, Inc.
  23. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, American Economic Association, vol. 83(3), pages 315-34, June.
  24. Campbell Leith & Simon Wren‐Lewis, 2013. "Fiscal Sustainability in a New Keynesian Model," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 45(8), pages 1477-1516, December.
  25. Troy Davig & Eric M. Leeper, 2009. "Monetary-fiscal policy interactions and fiscal stimulus," Research Working Paper, Federal Reserve Bank of Kansas City RWP 09-12, Federal Reserve Bank of Kansas City.
  26. Enrique G. Mendoza, 2006. "Lessons From the Debt-Deflation Theory of Sudden Stops," NBER Working Papers 11966, National Bureau of Economic Research, Inc.
  27. Martin Fukac & Adrian Pagan, 2010. "Structural macro-econometric modelling in a policy environment," Research Working Paper, Federal Reserve Bank of Kansas City RWP 10-08, Federal Reserve Bank of Kansas City.
  28. Ester Faia & Eleni Iliopulos, 2010. "Financial Globalization, Financial Frictions and Optimal Monetary Policy," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00497486, HAL.
  29. Douglas Laxton & Susanna Mursula & Michael Kumhof & Dirk Muir, 2010. "The Global Integrated Monetary and Fiscal Model (GIMF)," IMF Working Papers, International Monetary Fund 10/34, International Monetary Fund.
  30. Bianca De Paoli, 2004. "Monetary policy and welfare in a small open economy," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19950, London School of Economics and Political Science, LSE Library.
  31. Faia, Ester & Iliopulos, Eleni, 2011. "Financial openness, financial frictions and optimal monetary policy," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 35(11), pages 1976-1996.
  32. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, Elsevier, vol. 27(1), pages 129-147, February.
  33. Eric M. Leeper, 2013. "Fiscal Limits and Monetary Policy," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 13(2), pages 33-58.
  34. Paul Castillo & Carlos Montoro & Vicente Tuesta, 2006. "An Estimated Stochastic General Equilibrium Model with Partial Dollarization: A Bayesian Approach," Working Papers Central Bank of Chile, Central Bank of Chile 381, Central Bank of Chile.
  35. Javier García-Cicco & Roberto Pancrazi & Martín Uribe, 2006. "Real Business Cycles in Emerging Countries?," NBER Working Papers 12629, National Bureau of Economic Research, Inc.
  36. Michal Andrle & Tibor Hledik & Ondra Kamenik & Jan Vlcek, 2009. "Implementing the New Structural Model of the Czech National Bank," Working Papers, Czech National Bank, Research Department 2009/2, Czech National Bank, Research Department.
  37. Martin Fukac & Adrian Pagan, 2008. "Limited Information Estimation and Evaluation of DSGE Models," Reserve Bank of New Zealand Discussion Paper Series DP2008/11, Reserve Bank of New Zealand.
  38. Douglas Laxton & Dirk Muir & Michael Kumhof & Susanna Mursula & Charles Freedman, 2009. "Fiscal Stimulus to the Rescue? Short-Run Benefits and Potential Long-Run Costs of Fiscal Deficits," IMF Working Papers, International Monetary Fund 09/255, International Monetary Fund.
  39. Enrique G. Mendoza, 2010. "Sudden Stops, Financial Crises, and Leverage," American Economic Review, American Economic Association, American Economic Association, vol. 100(5), pages 1941-66, December.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cer:papers:wp476. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jana Koudelkova).

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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