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Conference Paper: Inflation dynamics: the role of public debt and policy regimes

TitleInflation dynamics: the role of public debt and policy regimes
Authors
KeywordsTime-varying in ation target
In ation response
Monetary and fiscal policy regimes
Public debt
Monetary and scal policy stances
DSGE model
Issue Date2012
Citation
The 60th Anniversary of the Korea Economic Association and the 15th International Conference, Seoul, South Korea, 20 June 2012. How to Cite?
AbstractWe investigate the impact of a time-varying inflation target and changing monetary and fiscal policy stances on the dynamics of inflation in a DSGE model. Under an active monetary and passive fiscal policy regime, inflation closely follows the path of the inflation target and a stronger reaction of monetary policy to inflation decreases the equilibrium response of inflation to non-policy shocks. In sharp contrast, under an active fiscal and passive monetary policy regime, inflation moves in an opposite direction from the inflation target and a stronger reaction of monetary policy to inflation increases the equilibrium response of inflation to non-policy shocks. Moreover, a weaker response of fiscal policy to debt decreases the response of inflation to non-policy shocks. These results are due to variation in the value of public debt that lead to wealth effects on households. Finally, under a passive monetary and passive fiscal policy regime, because of equilibrium indeterminacy, theory provides no clear answer on the behavior of inflation. We characterize these results analytically in a simple model and numerically in a richer quantitative model.
DescriptionSession III-7: Macroeconomics IV - Policy Regimes and DSGE Models
Persistent Identifierhttp://hdl.handle.net/10722/160853

 

DC FieldValueLanguage
dc.contributor.authorBhattarai, Sen_US
dc.contributor.authorLee, JWen_US
dc.contributor.authorPark, WYen_US
dc.date.accessioned2012-08-16T06:22:14Z-
dc.date.available2012-08-16T06:22:14Z-
dc.date.issued2012en_US
dc.identifier.citationThe 60th Anniversary of the Korea Economic Association and the 15th International Conference, Seoul, South Korea, 20 June 2012.en_US
dc.identifier.urihttp://hdl.handle.net/10722/160853-
dc.descriptionSession III-7: Macroeconomics IV - Policy Regimes and DSGE Models-
dc.description.abstractWe investigate the impact of a time-varying inflation target and changing monetary and fiscal policy stances on the dynamics of inflation in a DSGE model. Under an active monetary and passive fiscal policy regime, inflation closely follows the path of the inflation target and a stronger reaction of monetary policy to inflation decreases the equilibrium response of inflation to non-policy shocks. In sharp contrast, under an active fiscal and passive monetary policy regime, inflation moves in an opposite direction from the inflation target and a stronger reaction of monetary policy to inflation increases the equilibrium response of inflation to non-policy shocks. Moreover, a weaker response of fiscal policy to debt decreases the response of inflation to non-policy shocks. These results are due to variation in the value of public debt that lead to wealth effects on households. Finally, under a passive monetary and passive fiscal policy regime, because of equilibrium indeterminacy, theory provides no clear answer on the behavior of inflation. We characterize these results analytically in a simple model and numerically in a richer quantitative model.-
dc.languageengen_US
dc.relation.ispartof15th KEA Conferenceen_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectTime-varying in ation target-
dc.subjectIn ation response-
dc.subjectMonetary and fiscal policy regimes-
dc.subjectPublic debt-
dc.subjectMonetary and scal policy stances-
dc.subjectDSGE model-
dc.titleInflation dynamics: the role of public debt and policy regimesen_US
dc.typeConference_Paperen_US
dc.identifier.emailPark, WY: wypark@hku.hken_US
dc.identifier.authorityPark, WY=rp01552en_US
dc.description.naturepostprint-
dc.identifier.hkuros204619en_US

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