This chapter uses an example to demonstrate the steps of specifying, calibrating, solving, and si... more This chapter uses an example to demonstrate the steps of specifying, calibrating, solving, and simulating a macroeconomic model in order to evaluate alternative policies for reducing domestic public debt. It extends the simple closed-economy New Keynesian model by incorporating the zero lower bound and asymmetric wage adjustment (in which wages are much more rigid in the downward direction). We examine the dynamics of adjustment, given a sharp increase in government debt due to a once-only big increase in spending. We find that selective tax-rate rules, incorporating a degree of tax relief in a period of fiscal consolidation, are effective instruments for rapidly reducing the overhang of a large stock of public debt.
Empirical studies about whether trade and financial openness lead to favourable Gini outcomes yie... more Empirical studies about whether trade and financial openness lead to favourable Gini outcomes yield mixed results and theoretical work suggest that the effects likely depend on the stage of economic development and the nature of the production structure. This paper proposes a model of a small open economy with two key components – a component with heterogeneous agents earning a range of incomes and a component with traded and non-traded goods and associated financial linkages. Simulations show that both trade and financial openness can lead to improvements in both income growth and equality once an economy crosses a critical threshold in capital intensity and in the use of imported intermediate goods in the production process.
The authors consider various models of daily stock price returns in Australia which include the r... more The authors consider various models of daily stock price returns in Australia which include the responses to shocks in Japanese and US markets. From statistical data analysis they show that the daily returns in the stock index are predictable and in rank orderings the artificial neural network (ANN) model generates in-sample the lowest residual sum of squared errors compared with the autoregressive, the GARCH-M and some other models. They observe that relative to the ANN model the autoregressive model underestimates the effect of the Japanese stock market and overestimates the effect of the US stock market on Australian stock returns.
This paper examines the interaction of monetary and …scal policies in open economies subject to d... more This paper examines the interaction of monetary and …scal policies in open economies subject to distortionary monopolistic competition. Taxes may be lump sum or levied on labor income or consumption, and households accumulate both foreign assets and domestic government bonds. Under a balanced budget rule with lump-sum taxation, the welfare-improving monetary policy targets in‡ation and output growth and engages in interestrate smoothing. Under consumption or income taxes, which should vary with productivity, the best welfare-improving monetary policy targets in‡ation and output growth but does not engage in interest-rate smoothing.
This chapter uses an example to demonstrate the steps of specifying, calibrating, solving, and si... more This chapter uses an example to demonstrate the steps of specifying, calibrating, solving, and simulating a macroeconomic model in order to evaluate alternative policies for reducing domestic public debt. It extends the simple closed-economy New Keynesian model by incorporating the zero lower bound and asymmetric wage adjustment (in which wages are much more rigid in the downward direction). We examine the dynamics of adjustment, given a sharp increase in government debt due to a once-only big increase in spending. We find that selective tax-rate rules, incorporating a degree of tax relief in a period of fiscal consolidation, are effective instruments for rapidly reducing the overhang of a large stock of public debt.
Empirical studies about whether trade and financial openness lead to favourable Gini outcomes yie... more Empirical studies about whether trade and financial openness lead to favourable Gini outcomes yield mixed results and theoretical work suggest that the effects likely depend on the stage of economic development and the nature of the production structure. This paper proposes a model of a small open economy with two key components – a component with heterogeneous agents earning a range of incomes and a component with traded and non-traded goods and associated financial linkages. Simulations show that both trade and financial openness can lead to improvements in both income growth and equality once an economy crosses a critical threshold in capital intensity and in the use of imported intermediate goods in the production process.
The authors consider various models of daily stock price returns in Australia which include the r... more The authors consider various models of daily stock price returns in Australia which include the responses to shocks in Japanese and US markets. From statistical data analysis they show that the daily returns in the stock index are predictable and in rank orderings the artificial neural network (ANN) model generates in-sample the lowest residual sum of squared errors compared with the autoregressive, the GARCH-M and some other models. They observe that relative to the ANN model the autoregressive model underestimates the effect of the Japanese stock market and overestimates the effect of the US stock market on Australian stock returns.
This paper examines the interaction of monetary and …scal policies in open economies subject to d... more This paper examines the interaction of monetary and …scal policies in open economies subject to distortionary monopolistic competition. Taxes may be lump sum or levied on labor income or consumption, and households accumulate both foreign assets and domestic government bonds. Under a balanced budget rule with lump-sum taxation, the welfare-improving monetary policy targets in‡ation and output growth and engages in interestrate smoothing. Under consumption or income taxes, which should vary with productivity, the best welfare-improving monetary policy targets in‡ation and output growth but does not engage in interest-rate smoothing.
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