The Young Person's Guide to Neutrality, Price Level Indeterminacy, Interest Rate Pegs, and Fiscal Theories of the Price Level PDF Download
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Author: Willem H. Buiter
Publisher:
ISBN:
Category : Fiscal policy
Languages : en
Pages : 62
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Book Description
The paper establishes the following: First, money is neutral even if there is a non-zero stock of non-monetary nominal public debt, because the government adjusts real taxes to satisfy its intertemporal budget constraint. Second, Woodford's fiscal theory of the price level, according to which for certain fiscal rules the (initial) price level is independent of the nominal money stock, is invalid. It combines an overdetermined fiscal-financial program with an unwarranted weakening of the government's intertemporal budget constraint, requiring it to hold only in equilibrium, and only for arbitrarily restricted configurations of public spending, taxes and initial debt stocks. Third, there is price level determinacy under an exogenous nominal interest rate rule if the transactions technology has cash-in-advance features. The price level is hysteretic in this case. Finally, it is not possible to draw inferences about the historical process of technological improvements in the transactions technology leading to a cashless economy, by studying the limiting behavior, as a transactions efficiency index takes on successively higher values of a sequence of histories, each one of which is indexed for all time by a given level of efficiency.
Author: Willem H. Buiter
Publisher:
ISBN:
Category : Fiscal policy
Languages : en
Pages : 62
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Book Description
The paper establishes the following: First, money is neutral even if there is a non-zero stock of non-monetary nominal public debt, because the government adjusts real taxes to satisfy its intertemporal budget constraint. Second, Woodford's fiscal theory of the price level, according to which for certain fiscal rules the (initial) price level is independent of the nominal money stock, is invalid. It combines an overdetermined fiscal-financial program with an unwarranted weakening of the government's intertemporal budget constraint, requiring it to hold only in equilibrium, and only for arbitrarily restricted configurations of public spending, taxes and initial debt stocks. Third, there is price level determinacy under an exogenous nominal interest rate rule if the transactions technology has cash-in-advance features. The price level is hysteretic in this case. Finally, it is not possible to draw inferences about the historical process of technological improvements in the transactions technology leading to a cashless economy, by studying the limiting behavior, as a transactions efficiency index takes on successively higher values of a sequence of histories, each one of which is indexed for all time by a given level of efficiency.
Author: A. Leijonhufvud
Publisher: Springer
ISBN: 1403939616
Category : Business & Economics
Languages : en
Pages : 285
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Book Description
Since the inflationary 1970s, theoretical work on monetary policy has concentrated almost exclusively on price-level stabilization and the avoidance of nominal shocks. In the aftermath of the collapse of financial bubbles in various parts of the world, the accomplishments and limitations of this dominant approach are debated in this volume edited by Axel Leijonhufvud, with contributions by a number of noted monetary economists, including Nobel Laureate Robert Lucas.
Author:
Publisher:
ISBN:
Category : Economics
Languages : en
Pages : 550
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Book Description
Author: Forrest Capie
Publisher: Psychology Press
ISBN: 9780415300391
Category : Business & Economics
Languages : en
Pages : 216
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Book Description
The Economic and Monetary Union (EMU) has prompted much discussion. This book stands back and considers the relevant theory or what lessons might be drawn from other unions that have been formed as well as looking at EMU directly.
Author: Willem Buiter
Publisher: Cambridge University Press
ISBN: 1108842828
Category : Business & Economics
Languages : en
Pages : 229
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Book Description
It is well known that the balance sheets of most major central banks significantly expanded in the aftermath of the financial crisis of 2007-2011, but the consequences of this expansion are not well understood. This book develops a unified framework to explain how and why central bank balance sheets have expanded and what this shift means for fiscal and monetary policy. Buiter addresses a number of key issues in monetary economics and public finance, including how helicopter money works, when modern monetary theory makes sense, why the Eurosystem has a potentially fatal design flaw, why the fiscal theory of the price level is a fallacy and how to escape from the zero lower bound.
Author: Willem H. Buiter
Publisher:
ISBN:
Category : Budget
Languages : en
Pages : 84
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Book Description
It is not common for an entire scholarly literature to be based on a fallacy, that is, 'on faulty reasoning; misleading or unsound argument'. The 'fiscal theory of the price level', recently re-developed by Woodford, Cochrane, Sims and others, is an example of a fatally flawed research programme. The source of the fallacy is an economic misspecification. The proponents of the fiscal theory of the price level do not accept the fundamental proposition that the government's intertemporal budget constraint is a constraint on the government's instruments that must be satisfied for all admissible values of the economy-wide endogenous variables. Instead they require it to be satisfied only in equilibrium. This economic misspecification has implications for the mathematical or logical properties of the equilibria supported by models purporting to demonstrate the properties of the fiscal approach. These include: overdetermined (internally inconsistent) equilibria; anomalies like the apparent ability to price things that do not exist; the need for arbitrary restrictions on the exogenous and predetermined variables in the government's budget constraint; and anomalous behaviour of the equilibrium' price sequences, including behaviour that will ultimately violate physical resource constraints. The issue is of more than academic interest. Policy conclusions could be drawn from the fiscal theory of the price level that would be harmful if they influenced the actual behaviour of the fiscal and monetary authorities. The fiscal theory of the price level implies that a government could exogenously fix its real spending, revenue and seigniorage plans, and that the general price level would adjust the real value of its contractual nominal debt obligations so as to ensure government solvency. When reality dawns, the result could be painful fiscal tightening, government default, or unplanned recourse to the inflation tax.
Author: Erdo?du, M. Mustafa
Publisher: IGI Global
ISBN: 1522500545
Category : Business & Economics
Languages : en
Pages : 652
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Book Description
Since the 1970s, globalization has created an economic environment of interdependency between nations. Now, many countries in European and the MENA (Middle East and Northern Africa) regions must grapple with the need to increase public revenue while maneuvering through a global “race-to-the-bottom” tax competition. The Handbook of Research on Public Finance in Europe and the MENA Region explores economic development and public finance by providing critical insight into the use of public finance and policy and illuminating the intricacies of these topics through discussion of theory, empirical work, and policy objectives. This book is ideally designed for business professionals, policy makers, financers, students and researchers in the fields of public policy and economics.
Author:
Publisher:
ISBN:
Category : Economic policy
Languages : en
Pages : 264
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Book Description
Author: National Bureau of Economic Research
Publisher:
ISBN:
Category :
Languages : en
Pages : 252
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Book Description
Author: Julio Rotemberg
Publisher:
ISBN:
Category : Business cycles
Languages : en
Pages : 56
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Book Description
This paper considers a model where individual workers bargain with firms over their wages and where their bargaining power is so strong that some workers are unemployed. The result is that an increase in the elasticity of demand facing individual firms raises employment (as in the case where the labor market clears) but that wages rise only modestly. In fact, consistent with the findings of Wilson (1997), some job-specific wages actually fall. Nonetheless, average wages may rise either because wages of non-rationed workers rise or because there is cyclical upgrading of jobs. Assuming that workers are also rationed in financial markets, the increase in employment that accompanies the increase in the demand elasticity for individual products also increases consumption substantially. Thus, the model rationalizes the finding that real wages rise less in booms than does consumption. At the same time, the model is consistent with a lack of secular movements in hours and unemployment as well as a secular proportionality of consumption and real wages.
