The Implementation of Stabilization Policy
| Autor: | Olivier Loisel |
|---|---|
| Rok vydání: | 2013 |
| Předmět: |
Class (set theory)
Current (mathematics) local-equilibrium determinacy Computer science jel:E61 optimal monetary policy Conventional wisdom stabilization policy robust local-equilibrium determinacy observation set feasible path implementable path observation set 0502 economics and business Economics New Keynesian economics Econometrics ddc:330 050207 economics Set (psychology) feasible path E52 050205 econometrics E32 Stabilization policy Tax policy 05 social sciences Monetary policy dynamic stochastic rational-expectations models stabilization policy local equilibrium de- terminacy local path implementation jel:E52 implementable path debt-stabilizing tax policy Mathematical economics General Economics Econometrics and Finance |
| Popis: | In locally linearized dynamic stochastic rational‐expectations models, I introduce the concepts of feasible paths (paths on which the policy instrument can be expressed as a function of the policymaker's observation set) and implementable paths (paths that can be obtained, in a minimally robust way, as the unique local equilibrium under a policy‐instrument rule consistent with the policymaker's observation set). I show that, for relevant observation sets, the optimal feasible path under monetary policy can be non‐implementable in the new Keynesian model, while constant‐debt feasible paths under tax policy are always implementable in the real business cycle model. The first result sounds a note of caution about one of the main lessons of the new Keynesian literature, namely the importance for central banks to track some key unobserved exogenous rates of interest, while the second result restores to some extent the role of income or labor‐income taxes in safely stabilizing public debt. For any given implementable path, I show how to design arithmetically a policy‐instrument rule consistent with the policymaker's observation set and implementing this path as the robustly unique local equilibrium. |
| Databáze: | OpenAIRE |
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