In a NK model with two types of rational agents, savers and capitalists, and non- maximizing bank... more In a NK model with two types of rational agents, savers and capitalists, and non- maximizing banks, \u85nancial shocks do a\ua4ect the macroeconomic dynamics depending on banks\u92behaviour as for their leverage ratio. We \u85rst show that the level of banks\u92 leverage - which may be imposed by banks regulation - a\ua4ects the steady state level of output, employment and consumption, as might be expected in a non-Modigliani- Miller world. Di\ua4erent banks\u92 behaviour after a shock has widely di\ua4erent e\ua4ects on the macroeconomic dynamics: passive leverage results to be shock absorbing and capable of neutralizing an initial \u85nancial shock, whilst procyclical behaviour implies higher and more persistent instability and distributive e\ua4ects than the constant lever- age behaviour. Finally, we show that the interaction of procyclical leverage with hysteresis in output and employment stregthens the persistence of financial shocks
We analyze the non-linear effects of government spending for the Euro area in recession, by using ... more We analyze the non-linear effects of government spending for the Euro area in recession, by using local projection method and by testing whether the impact of the shock depends crucially on the levels of public debt or the depth of the recession. We provide three insights. First, expenditure mul-tipliers are not strongly state-dependent but they are always above unity. Second, state dependency emerges as soon as deep recession is distinguished from ordinary downturns. Third, fiscal space matters: expenditure multi-pliers are larger in low fiscal space, high debt, South-EZ countries than in low-debt, North-EZ countries.
In a NK model with two types of rational agents, savers and capitalists, and nonmaximizing banks,... more In a NK model with two types of rational agents, savers and capitalists, and nonmaximizing banks, financial shocks do affect the macroeconomic dynamics depending on banks’behaviour as for their leverage ratio. We first show that the level of banks’ leverage which may be imposed by banks regulation affects the steady state level of output, employment and consumption, as might be expected in a non-ModiglianiMiller world. Different banks’ behaviour after a shock has widely different effects on the macroeconomic dynamics: passive leverage results to be shock absorbing and capable of neutralizing an initial financial shock, whilst procyclical behaviour implies higher and more persistent instability and distributive effects than the constant leverage behaviour. Finally, we show that the interaction of procyclical leverage with hysteresis in output and employment stregthens the persistence of financial shocks. JEL: E32; E44; E70; G01.
We consider a NK-DSGE model with distortive taxation and heterogeneous agents, modeled using a mo... more We consider a NK-DSGE model with distortive taxation and heterogeneous agents, modeled using a modified version of the mechanism proposed by Bilbiie, Monacellli and Perotti (2012). We study the dynamics of the model in response to five shocks, under three different assumptions on the labor income tax rates: a) equal taxes, both agents face the same labor income tax rate; b) partial redistribution, both agents pay a tax but the tax rate on borrower labor income is lower than the tax rate on saver labor income; c) full redistribution, saver labor income is taxed while borrower labor income is subsidized at the same rate. In the analysis of expansionary fiscal policy, public debt increases more in a context of partial redistribution than in a context of full redistribution, due to the internalization of government budget constraint by savers. In addition, a negative saver tax shock has a negative impact on redistribution, which is exacerbated under partial redistribution. Finally, a ne...
We analyse the redistribution channel of a money-financed versus debt-financed fiscal stimulus in... more We analyse the redistribution channel of a money-financed versus debt-financed fiscal stimulus in a Borrower-Saver frammework. The redistribution channel is larger when we consider a money-financed fiscal stimulus. However, it generates also larger welfare losses than a debt-financed fiscal stimulus, particularly in a borrower-saver framework due to the additional presence of the consumption gap with respect to a representative agent model.
We consider a NK-DSGE model with distortive taxation and heterogeneous agents, modeled using a mo... more We consider a NK-DSGE model with distortive taxation and heterogeneous agents, modeled using a modified version of the mechanism pro- posed by Bilbiie, Monacelli and Perotti (2012). Following Gali (2014), we study the effects of a shock to government purchases under two alternative financing regimes: (i) monetary financing; (ii) debt financing. Particularly, we focus on the redistributive effects of the two regimes and we find the following. Both regimes imply a redistributive effect from savers to borrowers, measured in terms of the ratio between the consumption of borrowers and that of savers. The redistribution is much greater in the money-financed fiscal stimulus, where the consumption ratio is more than three times higher than the implied one in the debt-financed fiscal stimulus. Borrowers are better o¤ also in terms of their relative labor supply and money demand. Finally, with respect to the representative agent model, the presence of borrowers enhances the impact of the fisc...
This paper analyzes the redistributive channel of a money financed fiscal stimulus (MFFS). It sho... more This paper analyzes the redistributive channel of a money financed fiscal stimulus (MFFS). It shows that the way in which this regime is implemented is crucial to determine its redistributive effects and consequently its effectiveness. In normal times, the most effective regime is a MFFS with no additional intervention by the Central Bank to stabilize the real public debt using infiation, whereas a MFFS accompanied by real debt stabilization - through the adjustment of seigniorage - is the most effective one in a ZLB scenario. In a TANK model this regime is so effec- tive to avoid the recessionary effects implied by the ZLB. This result does not hold in a RANK model, where the redistributive channel is absent. Remarkably, contrary to the common wisdom a MFFS is followed by a moderate increase of infiation, which is only temporarily higher than the target.
In a NK model with two types of rational agents, savers and capitalists, and non- maximizing bank... more In a NK model with two types of rational agents, savers and capitalists, and non- maximizing banks, \u85nancial shocks do a\ua4ect the macroeconomic dynamics depending on banks\u92behaviour as for their leverage ratio. We \u85rst show that the level of banks\u92 leverage - which may be imposed by banks regulation - a\ua4ects the steady state level of output, employment and consumption, as might be expected in a non-Modigliani- Miller world. Di\ua4erent banks\u92 behaviour after a shock has widely di\ua4erent e\ua4ects on the macroeconomic dynamics: passive leverage results to be shock absorbing and capable of neutralizing an initial \u85nancial shock, whilst procyclical behaviour implies higher and more persistent instability and distributive e\ua4ects than the constant lever- age behaviour. Finally, we show that the interaction of procyclical leverage with hysteresis in output and employment stregthens the persistence of financial shocks
We analyze the non-linear effects of government spending for the Euro area in recession, by using ... more We analyze the non-linear effects of government spending for the Euro area in recession, by using local projection method and by testing whether the impact of the shock depends crucially on the levels of public debt or the depth of the recession. We provide three insights. First, expenditure mul-tipliers are not strongly state-dependent but they are always above unity. Second, state dependency emerges as soon as deep recession is distinguished from ordinary downturns. Third, fiscal space matters: expenditure multi-pliers are larger in low fiscal space, high debt, South-EZ countries than in low-debt, North-EZ countries.
In a NK model with two types of rational agents, savers and capitalists, and nonmaximizing banks,... more In a NK model with two types of rational agents, savers and capitalists, and nonmaximizing banks, financial shocks do affect the macroeconomic dynamics depending on banks’behaviour as for their leverage ratio. We first show that the level of banks’ leverage which may be imposed by banks regulation affects the steady state level of output, employment and consumption, as might be expected in a non-ModiglianiMiller world. Different banks’ behaviour after a shock has widely different effects on the macroeconomic dynamics: passive leverage results to be shock absorbing and capable of neutralizing an initial financial shock, whilst procyclical behaviour implies higher and more persistent instability and distributive effects than the constant leverage behaviour. Finally, we show that the interaction of procyclical leverage with hysteresis in output and employment stregthens the persistence of financial shocks. JEL: E32; E44; E70; G01.
We consider a NK-DSGE model with distortive taxation and heterogeneous agents, modeled using a mo... more We consider a NK-DSGE model with distortive taxation and heterogeneous agents, modeled using a modified version of the mechanism proposed by Bilbiie, Monacellli and Perotti (2012). We study the dynamics of the model in response to five shocks, under three different assumptions on the labor income tax rates: a) equal taxes, both agents face the same labor income tax rate; b) partial redistribution, both agents pay a tax but the tax rate on borrower labor income is lower than the tax rate on saver labor income; c) full redistribution, saver labor income is taxed while borrower labor income is subsidized at the same rate. In the analysis of expansionary fiscal policy, public debt increases more in a context of partial redistribution than in a context of full redistribution, due to the internalization of government budget constraint by savers. In addition, a negative saver tax shock has a negative impact on redistribution, which is exacerbated under partial redistribution. Finally, a ne...
We analyse the redistribution channel of a money-financed versus debt-financed fiscal stimulus in... more We analyse the redistribution channel of a money-financed versus debt-financed fiscal stimulus in a Borrower-Saver frammework. The redistribution channel is larger when we consider a money-financed fiscal stimulus. However, it generates also larger welfare losses than a debt-financed fiscal stimulus, particularly in a borrower-saver framework due to the additional presence of the consumption gap with respect to a representative agent model.
We consider a NK-DSGE model with distortive taxation and heterogeneous agents, modeled using a mo... more We consider a NK-DSGE model with distortive taxation and heterogeneous agents, modeled using a modified version of the mechanism pro- posed by Bilbiie, Monacelli and Perotti (2012). Following Gali (2014), we study the effects of a shock to government purchases under two alternative financing regimes: (i) monetary financing; (ii) debt financing. Particularly, we focus on the redistributive effects of the two regimes and we find the following. Both regimes imply a redistributive effect from savers to borrowers, measured in terms of the ratio between the consumption of borrowers and that of savers. The redistribution is much greater in the money-financed fiscal stimulus, where the consumption ratio is more than three times higher than the implied one in the debt-financed fiscal stimulus. Borrowers are better o¤ also in terms of their relative labor supply and money demand. Finally, with respect to the representative agent model, the presence of borrowers enhances the impact of the fisc...
This paper analyzes the redistributive channel of a money financed fiscal stimulus (MFFS). It sho... more This paper analyzes the redistributive channel of a money financed fiscal stimulus (MFFS). It shows that the way in which this regime is implemented is crucial to determine its redistributive effects and consequently its effectiveness. In normal times, the most effective regime is a MFFS with no additional intervention by the Central Bank to stabilize the real public debt using infiation, whereas a MFFS accompanied by real debt stabilization - through the adjustment of seigniorage - is the most effective one in a ZLB scenario. In a TANK model this regime is so effec- tive to avoid the recessionary effects implied by the ZLB. This result does not hold in a RANK model, where the redistributive channel is absent. Remarkably, contrary to the common wisdom a MFFS is followed by a moderate increase of infiation, which is only temporarily higher than the target.
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