scholarly journals Optimal Monetary and Fiscal Policy with a Zero Bound on Nominal Interest Rates

2013 ◽  
Vol 45 (7) ◽  
pp. 1335-1350 ◽  
Author(s):  
SEBASTIAN SCHMIDT
Keyword(s):  
Fiscal Policy ◽  
Interest Rates ◽  
Nominal Interest Rates ◽  
Monetary And Fiscal Policy ◽  
Zero Bound

THE EFFECT OF FISCAL POLICY ON THE SHORT-RUN RELATION BETWEEN NOMINAL INTEREST RATES AND INFLATION

1987 ◽  
Vol 25 (1) ◽  
pp. 27-42 ◽  
Author(s):  
VICTOR A. CANTO ◽  
GERALD NICKELSBURG ◽  
PAUL RIZOS
Keyword(s):  
Fiscal Policy ◽  
Interest Rates ◽  
Nominal Interest Rates ◽  
Short Run

scholarly journals Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates

2014 ◽  
Vol 104 (10) ◽  
pp. 3154-3185 ◽  
Author(s):  
Eric T. Swanson ◽  
John C. Williams
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Lower Bound ◽  
Private Sector ◽  
Interest Rates ◽  
Zero Lower Bound ◽  
Short Term ◽  
Macroeconomic Models ◽  
Monetary And Fiscal Policy ◽  
Effectiveness Of Monetary Policy

According to standard macroeconomic models, the zero lower bound greatly reduces the effectiveness of monetary policy and increases the efficacy of fiscal policy. However, private-sector decisions depend on the entire path of expected future short-term interest rates, not just the current short-term rate. Put differently, longer-term yields matter. We show how to measure the zero bound's effects on yields of any maturity. Indeed, 1- and 2-year Treasury yields were surprisingly unconstrained throughout 2008 to 2010, suggesting that monetary and fiscal policy were about as effective as usual during this period. Only beginning in late 2011 did these yields become more constrained. (JEL E43, E52, E62)

scholarly journals Oil shocks and the zero bound on nominal interest rates

2013 ◽  
Vol 32 ◽  
pp. 941-967 ◽  
Author(s):  
Martin Bodenstein ◽  
Luca Guerrieri ◽  
Christopher J. Gust
Keyword(s):  
Interest Rates ◽  
Oil Shocks ◽  
Nominal Interest Rates ◽  
Zero Bound

scholarly journals Sharing the Burden: Monetary and Fiscal Responses to a World Liquidity Trap

2013 ◽  
Vol 5 (3) ◽  
pp. 190-228 ◽  
Author(s):  
David Cook ◽  
Michael B Devereux
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Optimal Policy ◽  
Liquidity Trap ◽  
Relative Prices ◽  
Policy Responses ◽  
Global Liquidity ◽  
Initial Shock ◽  
Monetary And Fiscal Policy ◽  
Zero Bound

This paper analyzes optimal policy responses to a global liquidity trap. The key feature of this environment is that relative prices respond perversely. A fall in demand in one country causes an appreciation of its terms of trade, exacerbating the initial shock. At the zero bound, this country cannot counter this shock. Then it may be optimal for the partner country to raise interest rates. The partner may set a positive policy interest rate, even though its “natural interest rate” is below zero. An optimal policy response requires a mutual interaction between monetary and fiscal policy. (JEL E12, E32, E44, E52, E62, F44, G01)

scholarly journals Oil Shocks and the Zero Bound on Nominal Interest Rates

2010 ◽  
Vol 2010 (1009) ◽  
pp. 1-47
Author(s):  
Martin Bodenstein ◽  
◽  
Luca Guerrieri ◽  
Christopher J. Gust
Keyword(s):  
Interest Rates ◽  
Oil Shocks ◽  
Nominal Interest Rates ◽  
Zero Bound

Debt dollarisation poses dilemmas in Argentina

2016 ◽  
Keyword(s):  
Exchange Rate ◽  
Fiscal Policy ◽  
Interest Rates ◽  
Policy Support ◽  
Economic Downturn ◽  
External Shocks ◽  
Content Type ◽  
The Exchange Rate ◽  
Monetary And Fiscal Policy

Subject Monetary, fiscal and debt concerns. Significance After falling to nearly 16 pesos/dollar in early March, the exchange rate stabilised, mainly due to rising domestic interest rates, which climbed to a peak of 38.0%. Monetary tightening and the deepening of the economic downturn helped to bring down inflation, which is expected to reach a monthly rate of 1.5% in the last quarter. Lower interest rates and decreasing inflation are needed to drive an economic rebound, key to the government's prospects in October 2017 mid-term elections. Impacts Dollarisation of financial liabilities will leave the economy more vulnerable to negative external shocks. The economy may show further decline in third-quarter figures. Moderating inflation and monetary and fiscal policy support are expected to help turn growth positive in 2017.

Maintaining Stable Macroeconomic Conditions

2019 ◽  
Vol 250 ◽  
pp. R7-R14 ◽  
Author(s):  
Russell Jones ◽  
John Llewellyn
Keyword(s):  
Fiscal Policy ◽  
Interest Rates ◽  
Aggregate Demand ◽  
Active Role ◽  
Fiscal Rules ◽  
Ageing Population ◽  
The European Union ◽  
Executive Summary ◽  
Bank Of England ◽  
Monetary And Fiscal Policy

Executive SummaryThe UK economy faces more than usually uncertain times. Outside the European Union, and in an increasingly challenging global environment characterised by ageing populations, climate change, populism, protectionism, and more, the country needs to chart a new course. This may well require policymakers to consider unconventional approaches to monetary and fiscal policy and, at the very least argues for important modifications of the current policy regime, including the autonomous mandate of the Bank of England.At some point, there will be a major slowdown in economic activity. Yet the Bank of England has very little leeway to respond by cutting interest rates, and it has already adopted an armoury of unorthodox tools that may be decreasing in effectiveness. More radical monetary approaches would be likely to be politically controversial; and are not without risks. In these circumstances it would be a mistake to rely solely, or even largely, on monetary policy to maintain demand. It would be better to conduct monetary and fiscal policy in tandem, and for discretionary fiscal policy to be required to play a much more active role in demand management than hitherto. This would, for example, imply major extension of the automatic stabilisers and efforts better to calibrate discretionary initiatives with the business cycle.But given the long-term pressures on the public finances, more fundamental changes in the structure of spending and taxation are needed, along with a redrawing of fiscal rules and targets, under independent budgetary oversight. The current, historically low, share in GDP of public spending is itself unsustainable in light of the demand for services of an ageing population; plans should be made to raise it closer to the European average. In the most extreme circumstances it might become necessary to waive the fiscal rules entirely and for the Bank of England directly to underwrite fiscal stimulus in order to sustain aggregate demand. It would be wise for the authorities to consider the options in detail now, while the environment is still relatively stable.

scholarly journals Does fiscal policy affect interest rates? Evidence from a factor-augmented panel

2016 ◽  
Vol 16 (2) ◽  
Author(s):  
Salvatore Dell’Erba ◽  
Sergio Sola
Keyword(s):  
Fiscal Policy ◽  
Interest Rates ◽  
Real Time ◽  
Oecd Countries ◽  
Frame Work ◽  
Monetary And Fiscal Policy ◽  
Unobservable Factors ◽  
Fiscal Shocks

AbstractThis paper reconsiders the effects of fiscal policy on long-term interest rates employing a factor augmented panel (FAP) to control for the presence of common unobservable factors. We construct a real-time dataset of macroeconomic and fiscal variables for a panel of OECD countries for the period 1989–2013. We find that two global factors – the global monetary and fiscal policy stances – explain more than 60 percent of the variance in the long-term interest rates. Under our frame work, we find that the importance of domestic variables in explaining long-term interest rates is weakened. Moreover, the propagation of global fiscal shocks is larger in economies characterized by macroeconomic and institutional weaknesses.

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