ارزش تعهد سیاست های پولی تحت اعتبار مالی ناقص
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|27500||2012||17 صفحه PDF||سفارش دهید||محاسبه نشده|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Economic Dynamics and Control, Volume 36, Issue 6, June 2012, Pages 813–829
A central finding of the previous monetary policy research is that commitment to a policy rule results in substantial welfare gains. In this paper, I reevaluate the value of monetary policy commitment in an environment where monetary and fiscal policies are conducted by separate branches of the government. I find that welfare gains from monetary policy commitment can be small if the fiscal authority can exercise a certain degree of commitment on his own. I also find that a moderate improvement in fiscal credibility can substantially reduce the welfare gains from full commitment in monetary policy under monetary leadership. Under fiscal leadership, the degree of fiscal credibility does not affect the welfare gains from monetary commitment.
Since the pioneering works of Kydland and Prescott (1977) and Barro and Gordon (1983), numerous studies have investigated the welfare implications of commitment in monetary policy. A fairly common result that emerges from a variety of model specifications is that commitment to a monetary policy rule yields sizable welfare gains. Most of the studies that emphasize this result, however, either entirely ignore the role of fiscal policy or disregard institutional or preferential differences that might potentially characterize the conduct of fiscal and monetary policies. In this paper, I explore the implications of fiscal policy credibility on welfare gains from monetary policy commitment. I analyze an economy in which fiscal and monetary policies are designed by two separate administrative branches of the government. I show that the degree of commitment with which fiscal spending policies are conducted has strong implications on the welfare consequences of commitment in monetary policy. In particular, welfare gains from full monetary commitment can be quite small if the fiscal authority is able to independently exercise a small degree of commitment on its own. In dynamic economies, rational agents' current actions depend on future expectations of government policies. Thus, an optimizing policy maker must account for the influence of its policy choices on private agents' expectations. In the absence of a commitment mechanism that grants the ability to follow a particular contingency plan, the policy maker cannot manipulate future expectations. As is well known, in the face of cost-push disturbances, this results in a less favorable monetary policy trade-off between stabilizing inflation and stabilizing the output gap and often leads to suboptimal equilibrium outcomes. In this paper, I demonstrate that commitment on the part of the fiscal authority can substantially improve the monetary policy trade-off. Since the manner in which government spending policies are conducted has a large impact on future inflation expectations, fiscal policy commitment can potentially remedy the adverse welfare effects of monetary discretion. It is in this sense important to account for the degree of fiscal credibility to accurately assess the welfare gains resulting from monetary policy commitment. The theoretical framework I adopt is similar to the one used in Adam and Billi (2008), which extends the standard new-Keynesian model laid out in Clarida et al. (1999). Along the lines of Adam and Billi (2008), government spending provides direct utility to the household and is determined so as to maximize social welfare. Furthermore, fiscal and monetary policies are conducted individually in a non-cooperative fashion. Monetary policy maker sets the short-term nominal interest rate. Government spending is determined by the fiscal authority and is financed by lump-sum taxes. In the absence of a commitment device, the policy makers in this model fail to internalize the full impact of their current actions on private agents' past expectations whenever they revise and reoptimize ongoing policy plans. This results in a tendency to deviate from previously announced policies at the time of revision and points to a time-inconsistency problem for both policy authorities. The feature that fiscal and monetary policies are conducted by separate authorities with potentially different commitment capacities gives rise to interesting policy interactions. In particular, the fiscal authority can use his commitment capacity to alleviate the welfare losses arising from lack of commitment on the part of the monetary authority. In the face of an inflationary cost-push shock, under full monetary discretion and limited fiscal commitment, the fiscal policy maker attempts to curb inflationary pressures by cutting spending below the level dictated by the Ramsey policy (i.e., the level that would be chosen had fiscal and monetary policies been conducted by a single benevolent policy maker with full commitment). The contractionary impact of a persistent spending cut helps to control inflation expectations, which in turn improves the trade-off the discretionary monetary authority faces between stabilizing inflation and stabilizing the output-gap allowing her to achieve a better stabilization outcome. As the commitment capacity of the fiscal authority improves, the promise of a future spending cut becomes more credible rendering the fiscal authority more effective in controlling inflation expectations. As a result, monetary policy trade-off improves further and monetary commitment becomes less relevant for welfare outcomes. I find that, under a reasonable parametrization, even a small degree of fiscal commitment can single-handedly deliver a substantial improvement in stabilization terms making monetary commitment significantly less effective in influencing social welfare. The degree of fiscal credibility in the model is measured by the expected duration of a fiscal commitment episode. Following Schaumburg and Tambalotti (2007), it is assumed that in each period, with some probability αα, a new fiscal administrator takes over. Whenever a fiscal regime change occurs, the new administrator revises and reoptimizes the ongoing spending policy, which in general results in a repudiation of the promises made by the previous regime. Each fiscal regime is endowed with a quasi-commitment device which ensures that the regime is able to follow a particular policy plan of his choice during his own term. In this setup, the probability αα determines the expected duration of a fiscal commitment episode and provides us with a continuous measure of fiscal credibility. The adoption of this measure unveils certain key aspects of the relationship between fiscal credibility and the value of monetary commitment, which otherwise could not be discovered within the framework of the conventional “full discretion vs. full commitment” specification. It is found that the welfare gains from commitment in monetary policy decrease in the degree of fiscal credibility. Furthermore, the relationship is highly non-linear. A moderate increase in expected duration of fiscal commitment from a single quarter to two quarters has the largest impact on the value of monetary commitment. The marginal improvement in monetary policy trade-off resulting from an extra quarter of fiscal commitment diminishes fast and becomes quite insignificant once the expected duration of fiscal commitment extends beyond a fiscal year. These results are found to be robust under a range of alternative model specifications. This paper contributes to the strand of the literature that quantitatively evaluates the welfare benefits of commitment in monetary policy. Previously, Dennis and Soderstrom (2006) evaluated the welfare gains from monetary policy commitment using various alternative models and found that they can be as large as the gains resulting from a 3.6% permanent reduction in inflation. Using the standard new-Keynesian model, McCallum and Nelson (2004) conclude that the welfare gains generated by a shift from optimal discretion to a timelessly optimal policy is about 15–20% of the loss under discretion for a plausible range of parameter values. Schaumburg and Tambalotti (2007) study the welfare implications of quasi-commitment in monetary policy and show that substantial gains accrue at relatively low levels of credibility. Also, Adam and Billi (2007) demonstrate that when the policy maker takes into account the presence of a zero lower bound on nominal interest rates, welfare gains generated by monetary commitment (expressed in terms of permanent consumption) can increase by 65%. In these studies, however, welfare computations are based on the assumption that the monetary authority is able to oversee the entire macroeconomic policy process without having to interact with the fiscal authority in a non-trivial manner. On the contrary, empirical studies provide substantial evidence in support of strong interactions between the two policy institutions (see, e.g., Fragetta and Kirsanova, 2010; Muscatelli et al., 2004a and Muscatelli et al., 2004b). In addition, a large theoretical literature studies monetary–fiscal policy interactions in a variety of contexts (see, e.g., Adam and Billi, 2008, Schmitt-Grohé and Uribe, 2007 and Dixit and Lambertini, 2003). In the light of the empirical evidence and theoretical results, it appears highly desirable, if not imperative, to take into account potential interaction channels between monetary and fiscal policies to accurately evaluate the value of monetary policy commitment. To this end, I focus on the interaction of government spending and nominal interest rate policies and show that the welfare gains from monetary policy commitment can be as low as the increase in welfare resulting from a 0.26% permanent cut in the inflation rate if the fiscal policy is able to commit to a spending plan for only four quarters on average. Although the paper mainly focuses on the relationship between fiscal credibility and the value of monetary commitment under monetary leadership, the case of fiscal leadership and the welfare implications of alternative leadership specifications are also investigated. It is found that, under fiscal leadership, full commitment and full discretion in fiscal policy lead to the same equilibrium outcome. As a result, the degree of fiscal commitment does not affect the welfare gains from monetary commitment in the case of fiscal leadership. It is also found that a shift from fiscal to monetary leadership is welfare-improving if the leading authority is able to exercise full commitment. If the leader applies full discretion, monetary leadership results in lower welfare. The remainder of the paper is organized as follows: the theoretical model is explained in Section 2. Section 3 outlines the policy environment by presenting a log-linearized version of the model economy, derives the policy makers' welfare measure and constraints and characterizes the Ramsey equilibrium. The time-inconsistency problems faced by fiscal and monetary authorities are also discussed in Section 3. Section 4 describes the fiscal quasi-commitment problem and discusses the solution procedure. The monetary policy problem under full monetary discretion and commitment is discussed in Section 5. Section 6 presents the welfare analysis and establishes the main results regarding the relationship between the degree of fiscal credibility and the value of monetary commitment. Welfare implications of an alternative setup in which monetary and fiscal authorities switch roles are also discussed in Section 6. Section 7 assesses the sensitivity of the results to different model specifications. Section 8 summarizes the main findings and concludes.
نتیجه گیری انگلیسی
This study focuses on the implications of imperfect commitment in fiscal policy on the welfare gains from commitment in monetary policy. In the spirit of Schaumburg and Tambalotti (2007), the degree of credibility is measured with the expected duration of the period in which the policy maker accords with previously announced plans. The adoption of this continuous credibility measure, offering an escape clause from the bipolar nature of the “full commitment vs. full discretion” specification, facilitates a deeper welfare analysis and reveals a number of important results. I find that, under monetary leadership, the welfare gains resulting from a shift from full discretion to full commitment in monetary policy decrease in the degree of fiscal credibility. Further, a small improvement in fiscal commitment capacity significantly reduces the welfare gains from monetary commitment if fiscal policy is initially fully discretionary. A shift from full discretion to full commitment in fiscal policy, on the other hand, has no welfare implications under fiscal leadership. These results are found to be robust under a class of alternative model specifications. It is also found that, if the leading policy authority is able to commit, monetary leadership is more desirable. If the leader is fully discretionary, fiscal leadership is preferred. A potential direction for future research involves incorporating distortionary taxes into the analysis. Inclusion of distortionary measures, by taking into account the deadweight losses associated with tax policies, is likely to improve the quantitative relevance of the welfare computations. Also, this study evaluates the welfare gains from monetary commitment when policy makers have full information about the model economy. Another interesting extension may introduce model uncertainty and assess the implications of robustly optimal policies.