Budgetary Policies in a DSGE Model with Finite Horizons

39 Pages Posted: 19 Jul 2011

See all articles by Barbara Annicchiarico

Barbara Annicchiarico

University of Rome, Tor Vergata - Department of Economics and Finance; University of Rome Tor Vergata - Centre for International Studies on Economic Growth (CEIS)

Nicola Giammaroli

International Monetary Fund (IMF)

Alessandro Piergallini

Tor Vergata University

Date Written: July 19, 2011

Abstract

This paper presents a dynamic stochastic general equilibrium model with nominal rigidities, capital accumulation and finite horizons. Our New Keynesian 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. The model predicts that fiscal expansions generate a tradeoff in output dynamics between short-term gains and medium-term losses. It is 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.

Keywords: fiscal policy, monetary policy, nominal rigidities, capital accumulation, finite horizons, simulations

JEL Classification: E52, E58, E63

Suggested Citation

Annicchiarico, Barbara and Giammaroli, Nicola and Piergallini, Alessandro, Budgetary Policies in a DSGE Model with Finite Horizons (July 19, 2011). CEIS Working Paper No. 207. Available at SSRN: https://ssrn.com/abstract=1889025 or http://dx.doi.org/10.2139/ssrn.1889025

Barbara Annicchiarico (Contact Author)

University of Rome, Tor Vergata - Department of Economics and Finance ( email )

Rome, I-00133
Italy

University of Rome Tor Vergata - Centre for International Studies on Economic Growth (CEIS) ( email )

Via Columbia, 2
Rome, I-00133
Italy

Nicola Giammaroli

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Alessandro Piergallini

Tor Vergata University ( email )

Via Columbia 2
Rome, Rome 00133
Italy
+390672595431 (Phone)
+39062020500 (Fax)

HOME PAGE: http://www.economia.uniroma2.it/piergallini

Register to save articles to
your library

Register

Paper statistics

Downloads
49
Abstract Views
396
PlumX Metrics