Fiscal policy at the zero lower bound and in macro-finance models at 'normal times'

Kaszab, Lorant 2014. Fiscal policy at the zero lower bound and in macro-finance models at 'normal times'. PhD Thesis, Cardiff University. Item availability restricted.

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Abstract

The Main topic of the thesis is the effect of fiscal policy in dynamic-stochastic general equilibrium (DSGE) models. Fiscal Policy has received considerable attention after the introduction of the stimulus package of US Government in 2009. In addition, we allow for the fact that the zero lower bound on the short-term nominal interest rates was binding since 2008 in the US. In Chapter 1 we study a determinatistic labour tax cut at the zero lower bound to contribute to the literature by showing that a labour-tax cut increases GDP when non-Ricardian households and wage rigidity are included in the model. In chapter 2 and 3 (both co-authored with Ales Marsal) we depart from the assumption of zero lower bound. In particular, chapter 2 discusses the effect of fiscal pokicy on the yields of non-defaultable zero-coupon government bonds employing a New-Keynesian model with only price rigidity and Ricardian consumers. There are several empirical papers supporting the view that there is positive relationship between indicators of fiscal stance (like budget deficit) and yields of different maturities. We show that income taxation raises long-term nominal bond yields implying higher inflation-risks than with lump-sum taxation. Income taxation also generates a rise in inflation risks with smaller risk-aversion co-effiecient than the one needed in a model with time-varying inflation-target. In chapter 3 we extend the model used in chapter 2 with costly firm entry and find that the model is able to account for high bond and equity premia without compromising the fit of the model to key macro-economic regularities. The model is also sucessful in achieving inflation risks even with low coefficient on the output gap in the Taylor rule. The downside of this extension is that it yields a counterfactually low volatility of equity.

Item Type:	Thesis (PhD)
Status:	Unpublished
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Funders:	Julian Hodge Bursary
Date of First Compliant Deposit:	30 March 2016
Last Modified:	06 Oct 2023 14:49
URI:	https://orca.cardiff.ac.uk/id/eprint/65648

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