Monetary and fiscal rules in an emerging small open economy /

Monetary and fiscal rules in an emerging small open economy /

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Bibliographic Details
Author / Creator:Batini, Nicoletta, author.
Imprint:Washington, D.C. : International Monetary Fund, ©2009.
Description:1 online resource (78 pages) : color illustrations
Language:English
Series:IMF working paper ; WP/09/22
IMF working paper ; WP/09/22.
Subject:
Monetary policy -- Chile -- Econometric models.
Monetary policy -- United States -- Econometric models.
Fiscal policy -- Chile -- Econometric models.
Fiscal policy -- United States -- Econometric models.
Interest rates -- Chile -- Econometric models.
Interest rates -- United States -- Econometric models.
Fiscal policy -- Econometric models.
Interest rates -- Econometric models.
Monetary policy -- Econometric models.
Chile.
United States.
Format: E-Resource Book
URL for this record:http://pi.lib.uchicago.edu/1001/cat/bib/12495077
Hidden Bibliographic Details
Other authors / contributors:Levine, Paul, 1944- author.
Pearlman, Joseph, author.
International Monetary Fund. Western Hemisphere Department.
ISBN:1462309364
9781462309368
1452711739
9781452711737
1451871694
9781451871692
1282842447
9781282842441
9786612842443
661284244X
Digital file characteristics:text file
Notes:Includes bibliographical references (75-78).
Restrictions unspecified
Electronic reproduction. [Place of publication not identified] : HathiTrust Digital Library, 2011.
Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. http://purl.oclc.org/DLF/benchrepro0212
English.
digitized 2011 HathiTrust Digital Library committed to preserve
Print version record.
Summary:We develop a optimal rules-based interpretation of the 'three pillars macroeconomic policy framework': a combination of a freely floating exchange rate, an explicit target for inflation, and a mechanism than ensures a stable government debt-GDP ratio around a specified long run. We show how such monetary-fiscal rules need to be adjusted to accommodate specific features of emerging market economies. The model takes the form of two-blocs, a DSGE emerging small open economy interacting with the rest of the world and features, in particular, financial frictions It is calibrated using Chile and US data. Alongside the optimal Ramsey policy benchmark, we model the three pillars as simple monetary and fiscal rules including and both domestic and CPI inflation targeting interest rate rules alongside a 'Structural Surplus Fiscal Rule' as followed recently in Chile. A comparison with a fixed exchange rate regime is made. We find that domestic inflation targeting is superior to partially or implicitly (through a CPI inflation target) or fully attempting to stabilizing the exchange rate. Financial frictions require fiscal policy to play a bigger role and lead to an increase in the costs associated with simple rules as opposed to the fully optimal policy.
Other form:Print version: Batini, Nicoletta. Monetary and fiscal rules in an emerging small open economy. Washington, D.C. : International Monetary Fund, ©2009
Table of Contents:
  • I. Introduction; II. The Model; A. Households; B. Firms; C. The Government Budget Constraint and Foreign Asset Accumulation; D. The Equilibrium; E. Specialization of the Household's Utility Function; F. State Space Representation; G. The Small Open Economy; H. Calibration; III. Monetary Policy Interest Rate Rules; IV. Fiscal Rules; A.A Conventional Fiscal Rule; B. The Structural Fiscal Surplus Rule; V. Imposing the Nominal Interest Rate Zero Lower Bound; VI. Optimal Monetary and Fiscal Policy with Financial Frictions; A. Imposing the ZLB; Figures; 1. Imposition of ZLB: Model I
  • 2. Imposition of ZLB: Model IIIB. Welfare Decomposition; C. Impulse Responses; 3. Impulse Responses to a-1 Percent Technology Shock. Models I, II, and III; VII. The Performance of Optimized Simple Rules; 4. Imposition of ZLB: Flex(D)+Conventional Fiscal Rule, Model I; 5. Imposition of ZLB: Flex(D)+Conventional Fiscal Rule: Model III; VIII. Conclusions; Tables; 1. Notation for Prices; 2. Welfare Outcomes Under Optimal Policy: No ZLB Constraint; 3. Optimal Policy with a ZLB Constraint: Monetary Policy Only for Model I
  • 4. Optimal Commitment with a ZLB Constraint. Monetary Plus Fiscal Policy for Model I5. Welfare Outcomes Under Optimal Policy: ZLB Constraint; 6. Welfare Decomposition of Shocks; 7. Welfare Outcomes Under Optimized Simple Rules: FLEX (D) with a Conventional Fiscal Rule. Models I, II and III; 8. Welfare Outcomes Under Optimized Simple Rules: FIX with a Conventional Fiscal Rule. Models I, II and III; 9. Welfare Outcomes Under Optimized Simple Rules: FLEX(C) with a Conventional Fiscal Rule. Models I, II and III
  • 10. Welfare Outcomes Under Optimized Simple Rules: FLEX(D) with a Modified SFSR. Models I, II and IIIAppendixes; 1. The Steady State; 2. Linearization; 3. Calibration and Estimation; 4. Quadratic Approximation of the Welfare Loss

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