Tracking monetary-fiscal interactions across time and space

The long-term fiscal outlook of most high-income countries is grim. Should independent central bankers be afraid of an unpleasant monetarist arithmetic, i.e., fiscal imbalances spilling over to monetary policy and jeopardizing price stability? To provide some insights, this paper tracks the interactions between fiscal and monetary policies in the data since 1980 for Australia, Canada, Japan, Switzerland, the United Kingdom, and the United States. In doing so it uses a combination of time-varying parameter vector autoregression with sign, magnitude, and contemporaneous restrictions identification. Unlike conventional approaches, this can capture changes in monetary and fiscal behavior that are gradual and differ across the two policies. Our results show that in the United States the degree of monetary policy accommodation of fiscal shocks (debt-financed government spending) increased gradually between the late 1980s and the 2008 crisis, i.e., over the whole tenure of Chairman Greenspan. In contrast, it seems to have decreased over this period in the United Kingdom, Australia, Switzerland, and Canada. Our benchmark analysis and several robustness checks show that legislating numerical inflation targets may account for some of the country differences, presumably because they may shift the strategic power from fiscal to monetary policy. We conclude by considering the implications of our results for the long-term likelihood of an unpleasant monetarist arithmetic in the six countries.Web of Science14322716

Welfare Improving Coordination of Fiscal and Monetary Policy

Should independent monetary and fiscal policies coordinate their actions and/or targets? To examine this question the paper considers a simple reduced-form model in which monetary and fiscal policies are formally independent, but still interdependent—through their mutual spillovers. The analysis shows that the medium-run equilibrium levels of inflation, deficit, and output depend on the two policies’ (i) potency (elasticity of output with respect to the policy instruments), (ii) ambition (the level of their output target), and (iii) conservatism (inflation vs. output volatility aversion). What matters is however the relative degrees of these characteristics across the two policies rather than the absolute degrees for each policy. This implies that coordination of monetary and fiscal policy is superior to non-cooperative Nash behaviour. In particular, we find that ambition-coordination is more important than conservatism-coordination in terms of avoiding medium-run imbalances due to a tug-of-war betw een the policies. For this reason, and perhaps surprisingly, ambition-coordination can be welfare improving even if the policymakers’ objectives are idiosyncratic, and their coordinated output targets differ from the socially optimal value.Coordination, interaction, monetary policy, fiscal policy, central bank, government, inflation, deficit

Monetary and fiscal policy interaction with various degrees of commitment

Well before the global financial crisis, the long-term trend in fiscal policy had raised concerns about risks for the outcomes of monetary policy. Are fears of an unpleasant monetarist arithmetic justified? To provide some insights, this paper examines strategic fiscal-monetary interactions in a novel game-theory framework with asynchronous timing of moves. It generalizes the standard commitment concept of Stackelberg leadership by making it dynamic. By letting players move with a certain fixed frequency, this framework allows policies to be committed or rigid for different periods of time. We find that the inferior non-Ricardian (active fiscal, passive monetary) regime can occur in equilibrium, and that this is more likely in a monetary union due to free-riding. The bad news is that, unlike under the static commitment of Sargent and Wallace (1981), this may happen even if monetary policy acts as leader for longer periods of time than fiscal policy. The good news is that under some circumstances an appropriate institutional design of monetary policy may not only help the central bank resist fiscal pressure and avoid the unpleasant monetarist arithmetic, but also discipline excessively spending governments. By acting as a credible threat of a costly policy tug-of-war, long-term monetary commitment (e.g. a legislated inflation target) may induce a reduction in the average size of the budget deficit and debt, and move the economy to a Ricardian (passive fiscal, active monetary) regime. More broadly, this paper demonstrates that our game-theoretic framework with dynamic leadership can help to uniquely select a Pareto-efficient outcome in situations with multiple equilibria where standard approaches do not provide any guidance.Web of Science64129

Monetary Exit and Fiscal Spillovers

The aftermath of the Global financial crisis has seen two types of monetary policy concerns. Some economists (e.g. Paul Krugman) worry primarily about possible deflation caused by a secular stagnation. In contrast, others (e.g. John Taylor) worry about excessively high inflation caused by quantitative easing and monetization of fiscal imbalances. We show that some countries should fear both - deflation in the short term and high inflation in the long term - whereas some countries are unlikely to experience either. This is done in a game theoretic framework with dynamic leadership (stochastic revisions of actions). Such framework enables us to examine strategic monetary-fiscal interactions as well as policymakers' incomplete information about the economic recovery (such as during 2010-2014). Our empirical section then quantifies indices of monetary and fiscal leadership for high-income countries to assess their deflationary/inflationary prospects. It is shown, for example, that undesirable departures from price stability, both in the short term and long term, are much more likely in the United States and Japan than in Australia or New Zealand

Monetary Exit and Fiscal Spillovers

The aftermath of the Global financial crisis has seen two types of monetary policy concerns. Some economists (e.g. Paul Krugman) worry primarily about possible deflation caused by a secular stagnation. In contrast, others (e.g. John Taylor) worry about excessively high inflation caused by quantitative easing and monetization of fiscal imbalances. We show that some countries should fear both - deflation in the short term and high inflation in the long term - whereas some countries are unlikely to experience either. This is done in a game theoretic framework with dynamic leadership (stochastic revisions of actions). Such framework enables us to examine strategic monetary-fiscal interactions as well as policymakers' incomplete information about the economic recovery (such as during 2010-2014). Our empirical section then quantifies indices of monetary and fiscal leadership for high-income countries to assess their deflationary/inflationary prospects. It is shown, for example, that undesirable departures from price stability, both in the short term and long term, are much more likely in the United States and Japan than in Australia or New Zealand

A NOTE ON THE ANCHORING EFFECT OF EXPLICIT INFLATION TARGETS

Empirical literature provided convincing evidence that explicit (i.e., legislated) inflation targets anchor expectations. I propose a novel game theoretic framework with generalized timing that allows us to formally capture this beneficialanchoring effect. Using the framework I identify several factors that influence whether and how strongly expectations are anchored, namely (i) the public's cost of decision making, (ii) the public's inflation aversion, (iii) the slope of the Phillips curve, (iv) the magnitude of supply shocks, (v) the degree of central bank conservatism, and under many (but not all) circumstances, (vi) the explicitness of the inflation target.</jats:p

Monetary-fiscal policy interactions: strategic behaviour, institutional influences and the sustainability of public finances

Import 02/02/2015PrezenčníNeuvedenoNeuveden

Compound and Extended Final Particles

The aim of this bachelor thesis is to explore the morphological, syntactic, and particularly the semantic properties of specific expressions of the Japanese grammar called compound and extended sentence ending particles. The purpose of the research is to answer the question of which combinations of sentence ending particles exist in contemporary Japanese, what are the meanings of these combinations and how they can be translated into Czech. The thesis is divided into two parts. The first part deals with the theoretical level, where sentence ending particles are examined in general and an overview of simple sentence ending particles is presented. In the second part, based on available academic literature and analysis of authentic language material, compound and extended sentence ending particles are examined, especially their meanings. Compound sentence ending particles kana, noka, yone and extended sentence ending particles monoka and janaika are analyzed. The conclusion of the thesis contains a summary of the specific features of the grammatical categories of compound and extended sentence ending particles. Keywords: Japanese, final particles, compound particles, modality