Fiscal policy in a monetary economy with capital and finite lifetime

Barbara Annicchiarico (), Nicola Giammarioli () and Alessandro Piergallini ()
Additional contact information
Nicola Giammarioli: European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany., http://www.ecb.europa.eu/home/html/index.en.html

No 661, Working Paper Series from European Central Bank

Abstract: This paper develops a dynamic stochastic general equilibrium model with nominal rigidities, capital accumulation and finite lifetimes. The framework exhibits intergenerational wealth effects and is intended to investigate the macroeconomic implications of fiscal policy, which is specified by either a debt-based tax rule or a balanced-budget rule allowing for temporary deficits. When calibrated to euro area quarterly data, the model predicts that fiscal expansions generate a tradeoff in output dynamics between short-term gains and medium-term losses. It is also shown that the effects of fiscal shocks crucially depend upon the conduct of monetary policy. Simulation analysis suggests that balanced-budget requirements enhance the determinacy properties of feedback interest rate rules by guaranteeing inflation stabilization. JEL Classification: E52, E58, E63.

Keywords: Fiscal Policy; Monetary Policy; Nominal Rigidities; Capital Accumulation; Finite Lifetime; Simulations. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-pbe
Date: 2006-07
View list of references View citations in EconPapers

Downloads: (external link)
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp661.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ecb:ecbwps:20060661

Ordering information: This working paper can be ordered from
Press and Information Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank
Address: Postfach 16 03 19, Frankfurt am Main, Germany
Contact information at EDIRC.
Series data maintained by Official Publications ().