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Exit Strategies

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  • Ignazio Angeloni
  • Ester Faia
  • Roland Winkler

Abstract

We study alternative scenarios for exiting the post-crisis fiscal and monetary accommodation using the model of Angeloni and Faia (2010), that combines a standard DSGE framework with a fragile banking sector, suitably modified and calibrated for the euro area. Credibly announced and fast fiscal consolidations dominate – based on simple criteria – alternative strategies incorporating various degrees of gradualism and surprise. The fiscal adjustment should be based on spending cuts or else be relatively skewed towards consumption taxes. The phasing out of monetary accommodation should be simultaneous or slightly delayed. We also find that, contrary to widespread belief, Basel III may well have an expansionary macroeconomic effect

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1676.

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Length: 54 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:kie:kieliw:1676

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Keywords: exit strategies; debt consolidation; fiscal policy; monetary policy; capital requirements; bank runs;

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Cited by:
  1. Hilberg, Björn & Hollmayr, Josef, 2011. "Asset prices, collateral and unconventional monetary policy in a DSGE model," Working Paper Series, European Central Bank 1373, European Central Bank.
  2. Jan Vlcek & Scott Roger, 2012. "Macrofinancial Modeling At Central Banks," IMF Working Papers, International Monetary Fund 12/21, International Monetary Fund.
  3. Kotaro Ishi & Kenji Fujita & Mark R. Stone, 2011. "Should Unconventional Balance Sheet Policies Be Added to the Central Bank toolkit? a Review of the Experience so Far," IMF Working Papers, International Monetary Fund 11/145, International Monetary Fund.

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