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Conference Paper: Inflation dynamics: the role of public debt and policy regimes
Title | Inflation dynamics: the role of public debt and policy regimes |
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Authors | |
Keywords | Time-varying in ation target In ation response Public debt Monetary and fi scal policy regimes Monetary and scal policy stances DSGE model |
Issue Date | 2012 |
Publisher | Society for Economic Dynamics. |
Citation | The 2013 Annual Meeting of the Society for Economic Dynamics, Seoul, South Korea, 27-29 June 2013. Paper 359, p. 1-60 How to Cite? |
Abstract | We investigate the roles of a time-varying inflation target and 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 leads to wealth effects on households. Finally, under a passive monetary and passive fiscal policy regime, both monetary and fiscal policy stances affect inflation dynamics, but because of a role for self-fulfilling beliefs due to equilibrium indeterminacy, theory provides no clear answer on the overall behavior of inflation. We characterize these results analytically in a simple model and numerically in a richer quantitative model. |
Description | Paper 359 |
Persistent Identifier | http://hdl.handle.net/10722/188030 |
DC Field | Value | Language |
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dc.contributor.author | Bhattarai, S | en_US |
dc.contributor.author | Lee, JW | en_US |
dc.contributor.author | Park, WY | en_US |
dc.date.accessioned | 2013-08-21T07:25:50Z | - |
dc.date.available | 2013-08-21T07:25:50Z | - |
dc.date.issued | 2012 | en_US |
dc.identifier.citation | The 2013 Annual Meeting of the Society for Economic Dynamics, Seoul, South Korea, 27-29 June 2013. Paper 359, p. 1-60 | en_US |
dc.identifier.uri | http://hdl.handle.net/10722/188030 | - |
dc.description | Paper 359 | - |
dc.description.abstract | We investigate the roles of a time-varying inflation target and 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 leads to wealth effects on households. Finally, under a passive monetary and passive fiscal policy regime, both monetary and fiscal policy stances affect inflation dynamics, but because of a role for self-fulfilling beliefs due to equilibrium indeterminacy, theory provides no clear answer on the overall behavior of inflation. We characterize these results analytically in a simple model and numerically in a richer quantitative model. | - |
dc.language | eng | en_US |
dc.publisher | Society for Economic Dynamics. | - |
dc.relation.ispartof | 2013 Annual Meeting of the Society for Economic Dynamics | en_US |
dc.subject | Time-varying in ation target | - |
dc.subject | In ation response | - |
dc.subject | Public debt | - |
dc.subject | Monetary and fi scal policy regimes | - |
dc.subject | Monetary and scal policy stances | - |
dc.subject | DSGE model | - |
dc.title | Inflation dynamics: the role of public debt and policy regimes | en_US |
dc.type | Conference_Paper | en_US |
dc.identifier.email | Park, WY: wypark@hku.hk | en_US |
dc.identifier.authority | Park, WY=rp01552 | en_US |
dc.description.nature | link_to_OA_fulltext | - |
dc.identifier.hkuros | 220182 | en_US |
dc.identifier.spage | 1 | - |
dc.identifier.epage | 60 | - |
dc.publisher.place | South Korea | - |