This paper examines possible explanations for observed differences in the transmission of euro ar... more This paper examines possible explanations for observed differences in the transmission of euro area monetary policy, as described by the properties of central bank large-scale macroeconomic models. In particular it considers the extent to which these differences are due to differences in the underlying economies. It finds that, against most yardsticks, the cross-country variation in the results is found to be plausible in the sense that it broadly corresponds with other evidence or observed characteristics of the economies in question.
RÉSUMÉ.............................................................................................. more RÉSUMÉ...................................................................................................................................1 NAIRU: INCOMES POLICY AND INFLATION........................................................................................4
This paper provides a brief summary of the literature on fiscal multipliers and presents results ... more This paper provides a brief summary of the literature on fiscal multipliers and presents results for the Italian economy. The question of interest is whether an increase in government purchases leads to a greater than one-for-one increase in output, taking into account whether the zero lower bound is binding and whether initial conditions on public finances matter. Using a dynamic general equilibrium model for the Italian economy, we find that in general the government spending multiplier is lower than one, except when the monetary policy is stuck at the zero lower bound for an extended period of time. However, when the cost of borrowing for the sovereign is tightly linked to public finance conditions, the size of the government spending multiplier becomes much smaller. Tax multipliers are in all cases smaller than government consumption. Finally, we provide a tentative assessment of the fiscal consolidation measures adopted in Italy in 2011-2012 and find that the available evidence...
What role was played by the incomes policy launched in 1992-93? Part of a new “culture of stabili... more What role was played by the incomes policy launched in 1992-93? Part of a new “culture of stability” or factor distorting the adjustment process? This paper makes an initial evaluation of the effects of the reform of the wage-bargaining system on the link between wages and prices, on the costs of disinflation and on the non-accelerating-inflation rate of unemployment (NAIRU).
The applied literature on adaptive learning has mostly focused on small, linear models, where the... more The applied literature on adaptive learning has mostly focused on small, linear models, where the minimum state variable (MSV) solution of the rational expectations equilibrium is used as the agents'perceived law of motion (PLM), which enables to preserve consistency of beliefs, one key aspect of rational expectations. In non-linear models a closed-form MSV solution does not exist and if the
ABSTRACT This paper briefly reviews the literature on fiscal multipliers and then presents result... more ABSTRACT This paper briefly reviews the literature on fiscal multipliers and then presents results for the Italian economy obtained by simulating a dynamic general equilibrium model that allows for the possibility (a) that the zero lower bound may be binding and (b) that the initial public debt-to-GDP ratio may affect the financing conditions of the public and private sectors (sovereign risk channel). The results are the following. First, the public consumption multiplier is in general less than 1. Second, it goes above 1 only under extremely strong assumptions, namely the constancy of the monetary policy rate for an exceptionally long period (at least five years) and there is full time-coincidence between the fiscal and the monetary stimuli. Third, when the sovereign risk channel is active the government spending multiplier is much lower. Finally, in all cases tax multipliers are lower than government consumption multipliers.
This paper examines possible explanations for observed differences in the transmission of euro ar... more This paper examines possible explanations for observed differences in the transmission of euro area monetary policy, as described by the properties of central bank large-scale macroeconomic models. In particular it considers the extent to which these differences are due to differences in the underlying economies. It finds that, against most yardsticks, the cross-country variation in the results is found to be plausible in the sense that it broadly corresponds with other evidence or observed characteristics of the economies in question.
RÉSUMÉ.............................................................................................. more RÉSUMÉ...................................................................................................................................1 NAIRU: INCOMES POLICY AND INFLATION........................................................................................4
This paper provides a brief summary of the literature on fiscal multipliers and presents results ... more This paper provides a brief summary of the literature on fiscal multipliers and presents results for the Italian economy. The question of interest is whether an increase in government purchases leads to a greater than one-for-one increase in output, taking into account whether the zero lower bound is binding and whether initial conditions on public finances matter. Using a dynamic general equilibrium model for the Italian economy, we find that in general the government spending multiplier is lower than one, except when the monetary policy is stuck at the zero lower bound for an extended period of time. However, when the cost of borrowing for the sovereign is tightly linked to public finance conditions, the size of the government spending multiplier becomes much smaller. Tax multipliers are in all cases smaller than government consumption. Finally, we provide a tentative assessment of the fiscal consolidation measures adopted in Italy in 2011-2012 and find that the available evidence...
What role was played by the incomes policy launched in 1992-93? Part of a new “culture of stabili... more What role was played by the incomes policy launched in 1992-93? Part of a new “culture of stability” or factor distorting the adjustment process? This paper makes an initial evaluation of the effects of the reform of the wage-bargaining system on the link between wages and prices, on the costs of disinflation and on the non-accelerating-inflation rate of unemployment (NAIRU).
The applied literature on adaptive learning has mostly focused on small, linear models, where the... more The applied literature on adaptive learning has mostly focused on small, linear models, where the minimum state variable (MSV) solution of the rational expectations equilibrium is used as the agents'perceived law of motion (PLM), which enables to preserve consistency of beliefs, one key aspect of rational expectations. In non-linear models a closed-form MSV solution does not exist and if the
ABSTRACT This paper briefly reviews the literature on fiscal multipliers and then presents result... more ABSTRACT This paper briefly reviews the literature on fiscal multipliers and then presents results for the Italian economy obtained by simulating a dynamic general equilibrium model that allows for the possibility (a) that the zero lower bound may be binding and (b) that the initial public debt-to-GDP ratio may affect the financing conditions of the public and private sectors (sovereign risk channel). The results are the following. First, the public consumption multiplier is in general less than 1. Second, it goes above 1 only under extremely strong assumptions, namely the constancy of the monetary policy rate for an exceptionally long period (at least five years) and there is full time-coincidence between the fiscal and the monetary stimuli. Third, when the sovereign risk channel is active the government spending multiplier is much lower. Finally, in all cases tax multipliers are lower than government consumption multipliers.
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Papers by Alberto Locarno