دانلود مقاله ISI انگلیسی شماره 24527
عنوان فارسی مقاله

سطح معین قیمت ها و سیاست های پولی تحت یک الزام متعادل بودجه

کد مقاله سال انتشار مقاله انگلیسی ترجمه فارسی تعداد کلمات
24527 2000 36 صفحه PDF سفارش دهید محاسبه نشده
خرید مقاله
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عنوان انگلیسی
Price level determinacy and monetary policy under a balanced-budget requirement
منبع

Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)

Journal : Journal of Monetary Economics, Volume 45, Issue 1, February 2000, Pages 211–246

کلمات کلیدی
قوانین متوازن بودجه - سیاست های پولی - تئوری مالی از سطح قیمت -
پیش نمایش مقاله
پیش نمایش مقاله  سطح معین قیمت ها و سیاست های پولی تحت یک الزام متعادل بودجه

چکیده انگلیسی

This paper analyzes the implications of a balanced-budget fiscal policy rule for price-level determination in a cash-in-advance economy under three alternative monetary policy regimes. It shows that the price level is indeterminate under a nominal interest rate peg and determinate under a money growth rate peg. Under a feedback rule that sets the nominal interest rate as a non-negative and non-decreasing function of the inflation rate, the price level is indeterminate for both low and high values of the inflation elasticity of the feedback rule and determinate for intermediate values. We also study balanced-budget rules that allow for bounded secondary surpluses or deficits. Comparing our results to those emphasized in the fiscal theory of the price level, it becomes clear that a key consideration for price-level determination is whether fiscal policy is specified as an exogenous sequence of primary surpluses/deficits or, alternatively, as an exogenous sequence of secondary surpluses/deficits.

مقدمه انگلیسی

In the past decade, the idea of imposing fiscal discipline through a balanced-budget requirement has gained considerable importance in the economic policy debate. This is reflected perhaps most clearly in the proposed balanced-budget amendment that was passed by the United States House of Representatives on 26 January 1995. Yet, little light has been shed on the consequences of balanced-budget rules for business-cycle fluctuations beyond the basic Keynesian insight that balanced-budget rules amplify business cycles by requiring tax increases and expenditure cuts during recessions and the reverse during booms. Even less theoretical work has been devoted to understanding the implications of balanced-budget rules for nominal stability, and, in particular, to understanding the restrictions that such a fiscal policy rule may impose on monetary policy if nominal stability is to be preserved. This paper is part of a research project that aims to bridge this gap. In Schmitt-Grohé and Uribe (1997), we show in the context of a real economy that a balanced-budget rule can create real instability by making expectations of future income tax increases self-fulfilling. This kind of instability arises for plausible parameter configurations and for income tax structures similar to those observed in the United States and other G7 countries. The present paper embeds a balanced-budget fiscal policy rule into a monetary economy and analyzes its implications for nominal stability, and in particular, for the determinacy of the price level. We model a balanced-budget requirement as a fiscal policy that sets an exogenous path for the secondary surplus, defined as tax revenues net of government expenditures and interest payments on the outstanding public debt. We combine the balanced-budget requirement with three simple monetary policy specifications: a nominal interest rate peg, a money growth rate peg, and a feedback rule whereby the nominal interest rate is set as a non-negative and non-decreasing function of the inflation rate. We conduct the analysis within the cash-in-advance model with cash and credit goods developed by Lucas and Stokey (1987). We first focus on a specification of the balanced-budget rule in which each period the secondary surplus is required to be zero, that is, the primary surplus (the difference between taxes and government expenditures) is required to be equal to interest payments on the outstanding public debt. We find that under this type of balanced-budget rule, the price level is indeterminate when the monetary authority follows an interest rate peg and is determinate when the monetary authority follows a money growth rate peg. These results are not necessary consequences of the monetary policy specifications alone. For example, Auernheimer and Contreras (1990), Sims (1994), and Woodford (1994) find that if the primary surplus is set exogenously, then an interest rate peg delivers a unique price level. This comparison highlights that given the monetary policy regime the adoption of a balanced-budget rule may have important consequences for nominal stability. If the balanced-budget rule is combined with the feedback rule, the price level is determinate when the nominal interest rate is moderately sensitive to the inflation rate, and is indeterminate when the nominal interest rate is either very responsive or little responsive to the inflation rate. Again, this result is driven by the balanced-budget requirement. For the same monetary policy specification we consider, Leeper (1991) shows that when the primary surplus is exogenous – a fiscal policy to which he refers as active – the price level is not indeterminate regardless of how sensitive the interest-rate feedback rule is with respect to inflation.1 Leeper also shows that if the primary surplus is increasing in and sensitive enough to the stock of public debt – a fiscal policy to which he refers as passive – the price level is indeterminate for relatively insensitive feedback rules and is determinate otherwise. Leeper's passive fiscal policy is similar to our balanced-budget rule because under both policies taxes are an increasing function of the stock of public debt. The reason why in our model, unlike in Leeper's, highly sensitive monetary feedback rules render the equilibrium price level indeterminate is that in our model the nominal interest rate affects the consumption/leisure, or cash/credit, margin. In Leeper's model this effect is not present because in his endowment money-in-the-utility-function model with a separable single-period utility function, the marginal utility of consumption is independent of the nominal interest rate in equilibrium. In practice, balanced-budget proposals typically allow the fiscal authority to run secondary surpluses, as in the proposed US balanced-budget amendment of 1995, or bounded secondary deficits, as in the Maastricht criteria for membership in the European economic and monetary union. Thus, our benchmark definition of a balanced-budget rule, although analytically convenient, is clearly unrealistic since it forces the government to run a zero secondary surplus on a period-by-period basis. However, it turns out that our main results are not driven by this particular specification of the balanced-budget rule. Specifically, we show that in the case in which fiscal policy takes the form of an exogenous, non-zero, bounded path for either real or nominal secondary surpluses/deficits, the price level remains indeterminate under an interest rate peg. Combining this result with that emphasized by the fiscal theory of the price level – i.e., that an interest rate peg combined with an exogenous path for the primary surplus/deficit delivers nominal determinacy – it becomes clear that a key consideration for price-level determination under an interest rate peg is whether fiscal policy is specified as an exogenous sequence of primary surpluses/deficits or alternatively as an exogenous sequence of secondary surpluses/deficits.2 We also study the implications of a balanced-budget requirement for optimal monetary policy. We find that under a balanced-budget requirement that eliminates budget surpluses as well as deficits in combination with any of the three monetary regimes described above, there exists no rational expectations equilibrium consistent with the optimum quantity of money advocated by Milton Friedman – a monetary policy consistent with a zero nominal interest rate. If the balanced-budget requirement allows for positive secondary surpluses, an equilibrium consistent with the optimum quantity of money may or may not exist depending on the sign of cumulative fiscal surpluses as well as on whether the fiscal authority specifies an exogenous path for the real or nominal surplus. In the next section, we describe the formal model and the fiscal policy regime. In 3, 4 and 5, we analyze the implications of balanced-budget rules for the determination of the price-level when the monetary authority follows, respectively, an interest rate peg, a money growth rate peg, and a feedback rule linking the nominal interest rate to inflation. Section 6 concludes.

نتیجه گیری انگلیسی

In the past decade, the idea of imposing fiscal discipline through a balanced-budget requirement has gained considerable importance in the economic policy debate. This is reflected perhaps most clearly in the proposed balanced-budget amendment that was passed by the United States House of Representatives on 26 January 1995. Yet, little light has been shed on the consequences of balanced-budget rules for business-cycle fluctuations beyond the basic Keynesian insight that balanced-budget rules amplify business cycles by requiring tax increases and expenditure cuts during recessions and the reverse during booms. Even less theoretical work has been devoted to understanding the implications of balanced-budget rules for nominal stability, and, in particular, to understanding the restrictions that such a fiscal policy rule may impose on monetary policy if nominal stability is to be preserved. This paper is part of a research project that aims to bridge this gap. In Schmitt-Grohé and Uribe (1997), we show in the context of a real economy that a balanced-budget rule can create real instability by making expectations of future income tax increases self-fulfilling. This kind of instability arises for plausible parameter configurations and for income tax structures similar to those observed in the United States and other G7 countries. The present paper embeds a balanced-budget fiscal policy rule into a monetary economy and analyzes its implications for nominal stability, and in particular, for the determinacy of the price level. We model a balanced-budget requirement as a fiscal policy that sets an exogenous path for the secondary surplus, defined as tax revenues net of government expenditures and interest payments on the outstanding public debt. We combine the balanced-budget requirement with three simple monetary policy specifications: a nominal interest rate peg, a money growth rate peg, and a feedback rule whereby the nominal interest rate is set as a non-negative and non-decreasing function of the inflation rate. We conduct the analysis within the cash-in-advance model with cash and credit goods developed by Lucas and Stokey (1987). We first focus on a specification of the balanced-budget rule in which each period the secondary surplus is required to be zero, that is, the primary surplus (the difference between taxes and government expenditures) is required to be equal to interest payments on the outstanding public debt. We find that under this type of balanced-budget rule, the price level is indeterminate when the monetary authority follows an interest rate peg and is determinate when the monetary authority follows a money growth rate peg. These results are not necessary consequences of the monetary policy specifications alone. For example, Auernheimer and Contreras (1990), Sims (1994), and Woodford (1994) find that if the primary surplus is set exogenously, then an interest rate peg delivers a unique price level. This comparison highlights that given the monetary policy regime the adoption of a balanced-budget rule may have important consequences for nominal stability. If the balanced-budget rule is combined with the feedback rule, the price level is determinate when the nominal interest rate is moderately sensitive to the inflation rate, and is indeterminate when the nominal interest rate is either very responsive or little responsive to the inflation rate. Again, this result is driven by the balanced-budget requirement. For the same monetary policy specification we consider, Leeper (1991) shows that when the primary surplus is exogenous – a fiscal policy to which he refers as active – the price level is not indeterminate regardless of how sensitive the interest-rate feedback rule is with respect to inflation.1 Leeper also shows that if the primary surplus is increasing in and sensitive enough to the stock of public debt – a fiscal policy to which he refers as passive – the price level is indeterminate for relatively insensitive feedback rules and is determinate otherwise. Leeper's passive fiscal policy is similar to our balanced-budget rule because under both policies taxes are an increasing function of the stock of public debt. The reason why in our model, unlike in Leeper's, highly sensitive monetary feedback rules render the equilibrium price level indeterminate is that in our model the nominal interest rate affects the consumption/leisure, or cash/credit, margin. In Leeper's model this effect is not present because in his endowment money-in-the-utility-function model with a separable single-period utility function, the marginal utility of consumption is independent of the nominal interest rate in equilibrium. In practice, balanced-budget proposals typically allow the fiscal authority to run secondary surpluses, as in the proposed US balanced-budget amendment of 1995, or bounded secondary deficits, as in the Maastricht criteria for membership in the European economic and monetary union. Thus, our benchmark definition of a balanced-budget rule, although analytically convenient, is clearly unrealistic since it forces the government to run a zero secondary surplus on a period-by-period basis. However, it turns out that our main results are not driven by this particular specification of the balanced-budget rule. Specifically, we show that in the case in which fiscal policy takes the form of an exogenous, non-zero, bounded path for either real or nominal secondary surpluses/deficits, the price level remains indeterminate under an interest rate peg. Combining this result with that emphasized by the fiscal theory of the price level – i.e., that an interest rate peg combined with an exogenous path for the primary surplus/deficit delivers nominal determinacy – it becomes clear that a key consideration for price-level determination under an interest rate peg is whether fiscal policy is specified as an exogenous sequence of primary surpluses/deficits or alternatively as an exogenous sequence of secondary surpluses/deficits.2 We also study the implications of a balanced-budget requirement for optimal monetary policy. We find that under a balanced-budget requirement that eliminates budget surpluses as well as deficits in combination with any of the three monetary regimes described above, there exists no rational expectations equilibrium consistent with the optimum quantity of money advocated by Milton Friedman – a monetary policy consistent with a zero nominal interest rate. If the balanced-budget requirement allows for positive secondary surpluses, an equilibrium consistent with the optimum quantity of money may or may not exist depending on the sign of cumulative fiscal surpluses as well as on whether the fiscal authority specifies an exogenous path for the real or nominal surplus. In the next section, we describe the formal model and the fiscal policy regime. In 3, 4 and 5, we analyze the implications of balanced-budget rules for the determination of the price-level when the monetary authority follows, respectively, an interest rate peg, a money growth rate peg, and a feedback rule linking the nominal interest rate to inflation. Section 6 concludes.

خرید مقاله
پس از پرداخت، فوراً می توانید مقاله را دانلود فرمایید.