RE-EXAMINING THE EFFECTIVENESS OF STABILISATION POLICY

This paper develops an alternative international macroeconomic model for evaluating the effectiveness of fiscal and monetary policy in stabilising national income under fixed and floating exchange rates. It encompasses national output and income, saving, investment, money and capital flows and linkages between the exchange rate, price levels and real interest rates consistent with international parity conditions. It demonstrates that the nature of government spending is pivotal to the effectiveness of fiscal policy, revealing that, ceteris paribus , higher public consumption expenditure contracts national income and depreciates the exchange rate, whereas higher productive public investment spending has opposite effects. The framework also shows that the effectiveness of fiscal and monetary policy as macroeconomic policy instruments is not ultimately dependent on the exchange rate regime.     

Monetary and fiscal policy interactions in a post Keynesian open-economy model

Using a post Keynesian model, this study aims to analyze the stabilizing role of fiscal and monetary policies in an open economy with a managed exchange rate regime. The real exchange rate is modeled as an endogenous variable and inflation explained using the conflicting claims approach. The dynamic properties of macroeconomic equilibrium are evaluated in different regimes of fiscal and monetary policies. The main result of this study suggests that the preferred policy regime is the one in which economic authorities are complementary and fiscal policy plays an explicitly active role. In this regime, the fiscal policy must commit to the target for the rate of capacity utilization and the monetary authority must commit to the inflation target.     

CENTRAL BANK INDEPENDENCE AND THE MONETARY INSTRUMENT PROBLEM

We study the monetary instrument problem in a dynamic noncooperative game between separate, discretionary, fiscal and monetary policy makers. We show that monetary instruments are equivalent only if the policy makers' objectives are perfectly aligned; otherwise an instrument problem exists. When the central bank is benevolent while the fiscal authority is short‐sighted relative to the private sector, excessive public spending and debt emerge under a money growth policy but not under an interest rate policy. Despite this property, the interest rate is not necessarily the optimal instrument.     

THE SIZE OF FISCAL MULTIPLIERS AND THE STANCE OF MONETARY POLICY IN DEVELOPING ECONOMIES

Implementing fiscal programs during monetary policy expansions seems to improve significantly their economic stimulus. We find this result by estimating the effect of government consumption shocks on gross domestic product (GDP) using a panel of 23 developing economies. Our goal is to better understand the reasons for the low fiscal multipliers found in the literature by performing estimations for alternative exchange rate regimes, business‐cycle phases, and monetary policy stances. In addition, we perform counterfactual simulations to analyze the possible gains from fiscal‐monetary policy coordination. Our results also show lower multipliers in developing economies with flexible regimes, especially during economic slowdowns. (JEL E62, E63, F32)     

汇率制度与宏观经济政策环境——以加拿大为例

加拿大属于典型的资源性经济,加元的汇率变化多受国际商品和石油价格的影响,超出了国内货币政策的控制范围,是独立浮动或是固定汇率？经过两次试验后,加拿大政府坚定地选择了独立浮动汇率制度,并最终实现了汇率政策与货币政策脱离,以此给予了加拿大银行较大的决策空间,使后者专注于维持较低的通货膨胀环境。同时,加拿大政府努力为汇率制度创造有利的宏观经济政策环境,财政政策和货币政策分工明确、相互支持,为汇率制度和经济增长奠定了可持续的坚实基础。本文以加拿大浮动汇率制度为主线,从财政政策、货币政策、政策搭配角度讨论其宏观经济政策框架,分析加元汇率制度的运行环境。在此基础上,本文探讨加拿大汇率政策及浮动汇率制度的作用与功能。本文第五部分对加拿大银行提出的汇率预测模型作出了较深入的分析。     

Cyclical fiscal rules for oil-exporting countries

Budget-balance tax-gap rules are preferred to other fiscal policy rules to stabilize the macroeconomic volatility and welfare in oil-exporting countries. The output-inflation trade-off is of particular concern for oil exporters relative to non-oil commodity exporters due to the pass through of oil prices into headline inflation which warrants fiscal reaction to crude oil revenue. This result is robust to several instruments satisfying the rule but with reduced efficiency for those instruments that impact potential output such as government investment and capital taxes. These rules are desirable for fixed exchange rate regimes but are unable to achieve the same degree of stability as when coordinated with inflation-targeting monetary policy. Even under optimal inflation-targeting regimes, the adoption of budget-balance tax-gap rules can produce reductions in macroeconomic volatility and welfare gains.     

Impact of foreign prices and interest rates on canadian economy under alternative monetary and exchange rate regimes

The main objective of this paper is to analyze the impact of U.S. short- and long-term monetary policy under both flexible and managed floating systems, using the new CANDIDE Model 2.0. We have also examined the role of domestic monetary policy in the Canadian economy under both fixed and flexible exchange rate systems. The following are some of the important findings of our study:

1. Our results support the traditional view that under the fixed exchange rate regime, monetary authorities cannot successfully pursue an independent monetary policy from its trading partners — an effort to increase money supply will be almost offset by increases in the balance of payments deficit. In contrast, in the flexible exchange rate regime, monetary policy is more effective in producing an increased growth in output and employment. However the increased output growth comes at the cost of higher prices induced by increased wages and a depreciation of the Canadian dollar.
2. Our results suggest that the impact of U.S. interest rates on investment, GNE, employment, productivity, and government debt is less severe in a pure floating exchange rate regime, compared to the managed floating system. However, the impact of U.S. interest rate policy on the Canadian inflation rate is worse in the case of flexible exchange rate regime. Even though real income and inflation are less favourable in both cases, our results indicate a trade-off between output growth and inflation.
3. Our results imply that under a pure floating monetary authorities can determine the long-run rate of inflation in Canada independent of others. However, the United States and Canadian economies are interrelated during the adjustment process, even under the flexible exchange rates, through the terms of trade and the wage-price spiral channels.

     

The effects of fiscal spending shocks on the performance of simple monetary policy rules

We examine the effects of fiscal shocks on the performance of alternative monetary policy rules in a small dynamic general equilibrium framework. We explicitly consider the interaction between fiscal and monetary policy rules which may be present in the real world. We use a simple specification for the fiscal policy rule and various specifications for the (simple) monetary policy rule. Our analysis suggests that some form of flexible inflation targeting regime would perform well in response to fiscal shocks compared to other forms of policy regimes.     

A Case for Managed Exchange Rates*

The incorporation of adaptive expectations by Dornbusch in a Mundell-Fleming model modifies significantly the traditional results of policy effectiveness in a small, open economy. While monetary policy is still able to influence aggregate demand when flexible exchange rates prevail, the effects of this policy on other important variables in the economy during the adjustment process to a new equilibrium may be considered sufficiently ‘disruptive’ so that the authorities will be hesitant to use their only fully-effective policy instrument for income-stabilization purposes. However, by adding a target level for the exchange rate to their list of goal variables and by using an appropriate mix of monetary and fiscal policies, it appears to be possible for the government to avoid these disruptive side effects.     

Monetary policy and fiscal limits with no-default

This paper discusses monetary and fiscal policy interactions that stabilize government debt. Two distortions prevail in the model economy: income taxes and liquidity constraints. Possible obstructions to fiscal policy include a ceiling on the equilibrium debt-to-GDP ratio, zero or negative elasticity of tax revenues, and a political intolerance of raising tax rates. At the fiscal limit two mechanisms restore solvency: fiscal inflation, which reduces the real value of nominal debt, and open market operations, which diminish the size of government debt held by the private sector. Three regimes achieve this goal. In all regimes monetary policy is passive. In all regimes a muted tax response to government debt is consistent with equilibrium. The propensity of a fiscal authority to smooth output is found to determine what is an acceptable response (in the form of tax rate changes) to the level of government debt, while monetary policy determines the timing and magnitude of fiscal inflation. Impulse responses show that the inflation and tax hikes needed to offset a permanent shock to transfers are lowest under nominal interest rate pegs. In this regime, most of the reduction in the real value of government debt comes from open market purchases.     

General Equilibrium Impacts of Monetary and Fiscal Policies on Welfare of Households in South Asia

Impacts of fiscal and monetary policies are assessed in an open economy two sector multi‐household general equilibrium tax model with money for South Asia. Despite impressive growth rates there is evidence for alarming gaps in the distribution of income among households that require very careful design of economic policies. Generally the impacts of fiscal expansions are positive for all categories of households under the flexible price system but the gains are much higher for households in the upper income group than for those in the bottom. In theory the equilibrium relative prices guarantee the optimal allocation of resources in such economy. Simulation results show that demand, output and employment are sensitive to the preferences of consumers, confidence of producers and sector specific production technologies. Monetary policy is super‐neutral under flexible price regime but can complement fiscal policy well when aggregate prices are made sticky. Combination of monetary and fiscal policies in this manner can have extensive impacts in efficiency and redistribution. Higher taxes distort incentives to work and investment from richer households slowing down the economy. This reduces the welfare level of both rich and poor. Flexibility in prices enhances the market mechanism and makes the fiscal policy more effective and efficient.     

Monetary and fiscal policy interactions: Evidence from emerging European economies

This paper examines the interactions between fiscal and monetary policy for some former transition, emerging European economies over the 1995Q1–2010Q4 period by using a Markov regime-switching model. We consider the monetary policy rule proposed by Taylor (1993) and the fiscal policy rule suggested by Davig and Leeper (2007) in accounting for monetary and fiscal policy interactions. Empirical results suggest that monetary and fiscal policy rules exhibit switching properties between active and passive regimes and all countries followed both active and passive monetary policies. As for fiscal policy, the Czech Republic, Estonia, Hungary, and Slovenia seem to have alternated between active and passive fiscal regimes while fiscal policies of Poland and the Slovak Republic can be characterized by a single fiscal regime. Although the policy mix and the interactions between monetary and fiscal policy point a diverse picture in our sample countries, the monetary policy seems to be passive in all countries after 2000. This finding is consistent with the constraints imposed by European Union enlargement on monetary policy.     

中国改革开放以来财政政策平滑经济波动的能力——基于传统IS-LM模型的实证分析

文章通过借助传统IS-LM模型和比较静态分析方法对中国改革开放以来财政政策平滑经济波动的能力进行了实证分析,得出:(1)财政政策对经济波动的整体平滑能力较低,平均只有6.35%,财政政策的平滑能力在经济波动的不同状态之间存在明显差异;(2)财政政策工具之间的平滑能力存在较大差异,其中财政购买性支出能平滑掉经济初始冲击的11.48%,而财政转移性支出和收入政策整体上反而使经济波动上升近3%;(3)内生性检验表明,中国只有相机性支出政策与经济波动之间存在显著的双向因果关系,不仅如此,相机性支出政策的内外时滞都较短。文章结论的政策含义是,提高中国财政政策稳定效果的关键在于提高政策工具的有效性与相互之间的协同效应,不仅如此,对经济高涨时期政府财政行为进行有效约束也至关重要。     

Alternative Monetary Policy Rules for Small Open Economies

This paper examines the relative merits of alternative monetary policy rules for a small open economy. Rules considered target: the exchange rate, price level, nominal income, or a monetary aggregate. The standard framework employed in previous comparisons of these rules fails to take account of important features of small open economies. In particular, the standard framework fails to consider the effects on aggregate supply of exchange rate adjustments resulting from adherence to policy rules. Incorporating these effects is shown to weaken the case for targeting nominal income and, more generally, to complicate the ranking of policy rules.     

Time-inconsistency and expansionary business cycle theories: What does matter for the central bank independence–inflation relationship?

Since the seminal paper of Kydland and Prescott (1977), a central bank’s independence (CBI) has been considered an important institutional condition for achieving lower inflation. Recently, however, this long-held belief has been challenged. This paper investigates the relationship between CBI and inflation for a large sample (91 countries) covering the period from 1990 to 2014. We follow the previous literature by considering differences across national monetary regimes in explaining this relationship. Our approach also traces the sources of the inflationary phenomenon. Using panel data and the turnover indicator as a proxy for CBI, we offer two main findings. First, we identify the role of exchange rate regimes in the dynamic between inflation and CBI. Second, our results show that only intermediate and flexible exchange rate regimes are appropriate in this relationship. This finding is explained by the level of CBI, which is very low for countries with a fixed exchange rate policy and low income levels. For policymakers, our results highlight the importance of the choice of monetary regime in controlling inflation in the presence of CBI. For public agents, our results provide guidelines for formulating expectations.     

Further evidence on monetary and fiscal policy coordination

The extent to which fiscal and monetary policies respond to inflation and unemployment and the degree to which policy makers coordinate their policies have important implications for their usefulness as instruments of economic stabilization. Using a framework of minimizing a policy maker's loss function, subject to the state of the economy, this paper tests for the joint determination of monetary and fiscal policies. Our results show that the pre-Reagan/Bush and pre-Volcker/Greenspan eras can be characterized by a noncooperative game between the two policies. For the Reagan/Bush and Volcker/Greenspan regimes, our results are consistent with a cooperative game in which fiscal policy dominates and monetary policy accommodates. Our results also have implications for the possibility of future cooperation by policy makers.Financial support from Southwest Texas State University and DePaul University is gratefully acknowledged.     

From Peg to Float: Exchange Market Pressure and Monetary Policy in the Czech Republic

Exchange market pressure (EMP) in the Czech Republic is calculated for 1995–2006, when the Czech National Bank transitioned to inflation targeting (IT). EMP is a useful indicator of incipient foreign exchange market pressures, a signal of the need for policy adjustments and a clear delineator of monetary policy regime change. VAR estimates clearly identify quite different policy responses during the two regimes. During 1995–98, interest rate and domestic credit responses to EMP were statistically significant and in accord with traditional theory, i.e. domestic credit creation and interest rates were managed to maintain the exchange rate target as if policymakers were explicitly responding to changes in EMP. During the 1998–2006 IT regime there is a link between domestic credit creation and EMP, with no interest rate effects. Exchange market interventions were incidental and supportive of IT goals. Impulse response functions mirror the VAR and Granger causality results.     

Single currency and fiscal performance: the early Euro Area in perspective

We examine how exchange rate regimes affect fiscal discipline by investigating European countries as they transitioned from flexible to fully fixed exchange rates under the Euro. We apply the synthetic control method to estimate, for each Eurozone country, its counterfactual budget stance under flexible rates. Our evidence strongly suggests that fixing exchange rates negatively impacted negatively fiscal discipline. However, effects were not homogeneous, as they were mediated by political factors. For example, countries where policymakers faced a longer political horizon and operated within a more cohesive political environment, managed to perform better in terms of fiscal discipline.     

Monetary–fiscal policy interactions and fiscal stimulus

Increases in government spending trigger substitution effects—both inter- and intra-temporal—and a wealth effect. The ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior. Studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption: higher future taxes create a strong negative wealth effect, while the active monetary response increases the real interest rate. This paper estimates Markov-switching policy rules for the United States and finds that monetary and fiscal policies fluctuate between active and passive behavior. When the estimated joint policy process is imposed on a conventional new Keynesian model, government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized. The paper reports the model's predictions of the macroeconomic impacts of the American Recovery and Reinvestment Act's implied path for government spending under alternative monetary–fiscal policy combinations.     

金融结构及其对货币传导机制的影响

本文在简要考察中国金融结构转型中货币政策机制 ,包括货币政策的工具、效率前沿和规则及相应的货币传导机制变迁轨迹的基础上 ,根据结构分割点原则 ,实证检验、估计和分析了金融结构变迁对货币政策的适用工具和反应函数的影响 ,以及对货币传导的利率机制 ,即由政策利率到市场利率、并进而到通胀率 -产出波动前沿的影响。基本的结论是 ,金融结构变迁深刻地影响着货币传导机制的性质和作用程度