Automatic Stabilizers and Monetary Rules in a Ricardian Economy
This paper analyses the effect of the fiscal structure upon the trade-off between inflation and output stabilization in presence of technological shocks in a DGE model with nominal inertia. The model is calibrated to reproduce the main features of European economies and it integrates a rich menu of fiscal variables as well as a target on the debt to output ratio. The main finding is that taxes linked to economic activity worsen the output-inflation variability trade-off as compared with an economy with lump-sum taxes, except when nominal and real rigidities are very large. Aside from the well known supply side channels that explain this result, we find that fiscal rules designed to ensure debt consolidation induce cyclical movements in aggregate demand that also contribute to increase the volatility of output in presence of distortionary taxes.
|Date of creation:||04 Jun 2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 1334 462479
Web page: http://www.res.org.uk/society/annualconf.asp
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ecj:ac2003:66. 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: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.