E62 - Fiscal Policy

• Behavioral Learning Equilibria in New Keynesian Models

  Staff Working Paper 2022-42 Cars Hommes, Kostas Mavromatis, Tolga Özden, Mei Zhu

  We introduce behavioral learning equilibria (BLE) into DSGE models with boundedly rational agents using simple but optimal first order autoregressive forecasting rules. The Smets-Wouters DSGE model with BLE is estimated and fits well with inflation survey expectations. As a policy application, we show that learning requires a lower degree of interest rate smoothing.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Economic models, Inflation and prices, Monetary policy JEL Code(s): C, C1, C11, D, D8, D83, D84, E, E3, E6, E62

• The Central Bank Strikes Back! Credibility of Monetary Policy under Fiscal Influence

  Staff Working Paper 2022-11 Antoine Camous, Dmitry Matveev

  Central banks in many advanced economies enjoy a high degree of independence, which protects monetary policy decisions from political influence. But how should independent central banks react if pressured by fiscal policy-makers? We examine whether a central bank should design a monetary policy framework that prescribes acting conditionally on how fiscal policy behaves.

  Content Type(s): Staff research, Staff working papers Topic(s): Credibility, Fiscal policy, Monetary policy JEL Code(s): E, E0, E02, E5, E52, E58, E6, E61, E62

• The Financial Origins of Non-fundamental Risk

  Staff Working Paper 2022-4 Sushant Acharya, Keshav Dogra, Sanjay Singh

  We explore the idea that the financial sector can be a source of non-fundamental risk to the rest of the economy. We also consider whether policy can be used to reduce this risk—either by increasing the supply of publicly backed safe assets or by reducing the demand for safe assets.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial markets, Financial stability JEL Code(s): D, D5, D52, D8, D84, E, E6, E62, G, G1, G10, G12

• Optimal Monetary Policy According to HANK

  Staff Working Paper 2021-55 Sushant Acharya, Edouard Challe, Keshav Dogra

  We study optimal monetary policy in an analytically tractable Heterogeneous Agent New Keynesian model. In the model, the central bank has an incentive to reduce consumption inequality in addition to keeping economic activity at its efficient level and inflation stable.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Monetary policy JEL Code(s): E, E2, E21, E3, E30, E5, E52, E6, E62, E63

• From He-Cession to She-Stimulus? The Labor Market Impact of Fiscal Policy Across Gender

  Staff Working Paper 2021-42 Alica Ida Bonk, Laure Simon

  The effects of fiscal policy shocks on labour market outcomes across gender depend on the type of public expenditure. Women benefit most from increases in the government wage bill, while men are the main beneficiaries of higher investment spending.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Fiscal policy, Labour markets JEL Code(s): E, E3, E32, E6, E62, J, J1, J16, J2, J21

• Fiscal Spillovers: The Case of US Corporate and Personal Income Taxes

  Staff Working Paper 2021-41 Madeline Hanson, Daniela Hauser, Romanos Priftis

  How do changes to personal and corporate income tax rates in the United States affect its trading partners? Spillover effects from cuts in the two taxes differ. They are generally small and negative for corporate taxes, but sizable and positive for personal income taxes.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Exchange rate regimes, Fiscal policy, International topics JEL Code(s): E, E3, E32, E6, E62, F, F4, F44, H, H2, H20

• The uneven economic consequences of COVID 19: A structural analysis

  Staff Analytical Note 2021-17 Martin Kuncl, Austin McWhirter, Alexander Ueberfeldt

  Using a structural model, we study the economic consequences of the COVID-19 shock. The uneven consequences, such as higher unemployment among young households, amplify the negative implications for the macroeconomy, household vulnerabilities and consumption inequality. Government support programs have stimulated the economy and lowered inequality and medium-term vulnerabilities.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Coronavirus disease (COVID-19), Fiscal policy, Monetary policy JEL Code(s): E, E2, E20, E5, E52, E6, E62

• ToTEM III: The Bank of Canada’s Main DSGE Model for Projection and Policy Analysis

  Technical Report No. 119 Paul Corrigan, Hélène Desgagnés, José Dorich, Vadym Lepetyuk, Wataru Miyamoto, Yang Zhang

  ToTEM III is the most recent generation of the Bank of Canada’s main dynamic stochastic general equilibrium model for projection and policy analysis. The model helps Bank staff tell clear and coherent stories about the Canadian economy’s current state and future evolution.

  Content Type(s): Staff research, Technical reports Topic(s): Business fluctuations and cycles, Economic models, Housing, Interest rates, Monetary policy JEL Code(s): E, E1, E17, E2, E20, E3, E30, E4, E40, E5, E50, E6, E62, E65, F, F4, F40, F41, G, G5, G51

• Monetary Policy, Trends in Real Interest Rates and Depressed Demand

  Staff Working Paper 2021-27 Paul Beaudry, Césaire Meh

  Over the last few decades, real interest rates have trended downward. The most common explanation is that this reflects depressed demand due to demographic, technological and other real factors. We explore the claim that these trends may have been amplified by certain features of monetary policy.

  Content Type(s): Staff research, Staff working papers Topic(s): Debt management, Economic models, Fiscal policy, Inflation and prices, Interest rates, Monetary policy JEL Code(s): E, E2, E4, E43, E44, E5, E52, E6, E62, E63, H, H3, H6, H63

• Shaping the future: Policy shocks and the GDP growth distribution

  Staff Working Paper 2021-24 Francois-Michel Boire, Thibaut Duprey, Alexander Ueberfeldt

  Can central bank and government policies impact the risks around the outlook for GDP growth? We find that fiscal stimulus makes strong GDP growth more likely—even more so when monetary policy is constrained—rather than weak GDP growth less likely. Thus, fiscal stimulus should accelerate the recovery phase of the COVID-19 pandemic.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Econometric and statistical methods, Financial stability, Fiscal policy, Monetary policy JEL Code(s): C, C3, C32, C5, C53, E, E5, E52, E6, E62