Debt Stabilization Bias and the Taylor Principle: Optimal Policy in a New Keynesian Model with Government Debt and Inflation Persistence
We analyse optimal monetary and fiscal policy in a New-Keynesian model with public debt and inflation persistence. Leith and Wren-Lewis (2007) have shown that optimal discretionary policy is subject to a ''debt stabilization bias'' which requires debt to be returned to its pre-sh...
Gespeichert in:
| 1. Verfasser: | |
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| Format: | Elektronisch E-Book |
| Sprache: | English |
| Veröffentlicht: |
Washington, D.C
International Monetary Fund
2007
|
| Schriftenreihe: | IMF Working Papers
Working Paper No. 07/206 |
| Online-Zugang: | UBW01 UEI01 LCO01 SBR01 UER01 SBG01 UBG01 FAN01 UBT01 FKE01 UBY01 UBA01 FLA01 UBM01 UPA01 UBR01 FHA01 FNU01 BSB01 TUM01 Volltext |
| Zusammenfassung: | We analyse optimal monetary and fiscal policy in a New-Keynesian model with public debt and inflation persistence. Leith and Wren-Lewis (2007) have shown that optimal discretionary policy is subject to a ''debt stabilization bias'' which requires debt to be returned to its pre-shock level. This finding has two important implications for optimal discretionary policy. Firstly, as Leith and Wren-Lewis have shown, optimal monetary policy in an economy with high steady-state debt cuts the interest rate in response to a cost-push shock - and therefore violates the Taylor principle. We show that this striking result is not true with high degrees of inflation persistence. Secondly, we show that optimal fiscal policy is more active under discretion than commitment at all degrees of inflation persistence and all levels of debt |
| Beschreibung: | 1 Online-Ressource (52 p) |
| ISBN: | 1451867700 9781451867701 |
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| illustrated | Not Illustrated |
| index_date | 2024-07-03T20:13:22Z |
| indexdate | 2024-07-10T09:35:30Z |
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| series2 | IMF Working Papers |
| spelling | Vines, David Verfasser aut Debt Stabilization Bias and the Taylor Principle Optimal Policy in a New Keynesian Model with Government Debt and Inflation Persistence Vines, David Washington, D.C International Monetary Fund 2007 1 Online-Ressource (52 p) txt rdacontent c rdamedia cr rdacarrier IMF Working Papers Working Paper No. 07/206 We analyse optimal monetary and fiscal policy in a New-Keynesian model with public debt and inflation persistence. Leith and Wren-Lewis (2007) have shown that optimal discretionary policy is subject to a ''debt stabilization bias'' which requires debt to be returned to its pre-shock level. This finding has two important implications for optimal discretionary policy. Firstly, as Leith and Wren-Lewis have shown, optimal monetary policy in an economy with high steady-state debt cuts the interest rate in response to a cost-push shock - and therefore violates the Taylor principle. We show that this striking result is not true with high degrees of inflation persistence. Secondly, we show that optimal fiscal policy is more active under discretion than commitment at all degrees of inflation persistence and all levels of debt Online-Ausg Stehn, Sven Jari Sonstige oth http://elibrary.imf.org/view/IMF001/08651-9781451867701/08651-9781451867701/08651-9781451867701.xml Verlag URL des Erstveröffentlichers Volltext |
| spellingShingle | Vines, David Debt Stabilization Bias and the Taylor Principle Optimal Policy in a New Keynesian Model with Government Debt and Inflation Persistence |
| title | Debt Stabilization Bias and the Taylor Principle Optimal Policy in a New Keynesian Model with Government Debt and Inflation Persistence |
| title_auth | Debt Stabilization Bias and the Taylor Principle Optimal Policy in a New Keynesian Model with Government Debt and Inflation Persistence |
| title_exact_search | Debt Stabilization Bias and the Taylor Principle Optimal Policy in a New Keynesian Model with Government Debt and Inflation Persistence |
| title_exact_search_txtP | Debt Stabilization Bias and the Taylor Principle Optimal Policy in a New Keynesian Model with Government Debt and Inflation Persistence |
| title_full | Debt Stabilization Bias and the Taylor Principle Optimal Policy in a New Keynesian Model with Government Debt and Inflation Persistence Vines, David |
| title_fullStr | Debt Stabilization Bias and the Taylor Principle Optimal Policy in a New Keynesian Model with Government Debt and Inflation Persistence Vines, David |
| title_full_unstemmed | Debt Stabilization Bias and the Taylor Principle Optimal Policy in a New Keynesian Model with Government Debt and Inflation Persistence Vines, David |
| title_short | Debt Stabilization Bias and the Taylor Principle |
| title_sort | debt stabilization bias and the taylor principle optimal policy in a new keynesian model with government debt and inflation persistence |
| title_sub | Optimal Policy in a New Keynesian Model with Government Debt and Inflation Persistence |
| url | http://elibrary.imf.org/view/IMF001/08651-9781451867701/08651-9781451867701/08651-9781451867701.xml |
| work_keys_str_mv | AT vinesdavid debtstabilizationbiasandthetaylorprincipleoptimalpolicyinanewkeynesianmodelwithgovernmentdebtandinflationpersistence AT stehnsvenjari debtstabilizationbiasandthetaylorprincipleoptimalpolicyinanewkeynesianmodelwithgovernmentdebtandinflationpersistence |