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Exit strategies

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  • Angeloni, Ignazio
  • Faia, Ester
  • Winkler, Roland

Abstract

We study alternative scenarios for exiting the post-crisis fiscal and monetary accommodation using a macromodel where banks choose their capital structure and are subject to runs. Under a Taylor rule, the post-crisis interest rate hits the zero lower bound (ZLB) and remains there for several years. In that condition, pre-announced and fast fiscal consolidations dominate - based on output and inflation performance and bank stability - alternative strategies incorporating various degrees of gradualism and surprise. We also examine an alternative monetary strategy in which the interest rate does not reach the ZLB; the benefits from fiscal consolidation persist, but are more nuanced.

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Paper provided by Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt in its series SAFE Working Paper Series with number 50.

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Date of creation: 2014
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Handle: RePEc:zbw:safewp:50
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Keywords: exit strategies; debt consolidation; fiscal policy; fiscal multipliers; monetary policy; bank runs;

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Find related papers by JEL classification:
  • G01 - Financial Economics - - General - - - Financial Crises
  • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
  • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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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 1373, European Central Bank.
  2. Jan Vlcek & Scott Roger, 2012. "Macrofinancial Modeling At Central Banks; Recent Developments and Future Directions," IMF Working Papers 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 11/145, International Monetary Fund.
  4. repec:kie:kieliw:1964 is not listed on IDEAS
  5. Wolters, Maik & Schwarzmüller, Tim, 2014. "The short- and long-run effects of fiscal consolidation in dynamic general equilibrium," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100445, Verein für Socialpolitik / German Economic Association.

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