(Optimal) Monetary Policy with and Without Debt
'We propose a framework of optimal monetary policy where debt sustainability may, or may not, be a relevant constraint for the central bank. We show analytically that in each environment the optimal interest rate path consists of a Taylor rule augmented with forward guidance terms. These terms...
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| container_volume | 2021-5 |
| creator | Chafwehé, Boris Oikonomou, Rigas Priftis, Romanos |
| description | 'We propose a framework of optimal monetary policy where debt sustainability may, or may not, be a relevant constraint for the central bank. We show analytically that in each environment the optimal interest rate path consists of a Taylor rule augmented with forward guidance terms. These terms arise either i) from 'twisting interest rates' when the central bank ensures debt sustainability, or ii) under no debt concerns, from committing to keep interest rates low at the exit of the liquidity trap. The optimal policy is isomorphic to Leeper's (1991) 'passive monetary/active fiscal policy' regime in the first instance, or 'active monetary/passive fiscal policy' regime in the second. We insert our framework into a standard medium scale DSGE model calibrated to the US. Optimal passive monetary policy with debt concerns is ineffective in stabilizing inflation, whereas under no debt concerns, monetary policy is very effective in stabilizing the macroeconomy'--Abstract, page ii. |
| format | Book |
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We show analytically that in each environment the optimal interest rate path consists of a Taylor rule augmented with forward guidance terms. These terms arise either i) from 'twisting interest rates' when the central bank ensures debt sustainability, or ii) under no debt concerns, from committing to keep interest rates low at the exit of the liquidity trap. The optimal policy is isomorphic to Leeper's (1991) 'passive monetary/active fiscal policy' regime in the first instance, or 'active monetary/passive fiscal policy' regime in the second. We insert our framework into a standard medium scale DSGE model calibrated to the US. Optimal passive monetary policy with debt concerns is ineffective in stabilizing inflation, whereas under no debt concerns, monetary policy is very effective in stabilizing the macroeconomy'--Abstract, page ii.</description><identifier>ISSN: 1701-9397</identifier><language>eng</language><publisher>Ottawa, ON, CA: Bank of Canada</publisher><subject>Business finance ; Business information ; Central bank ; Credit and debt ; Dsge ; Dsge model ; Dsge models ; Dynamic stochastic general equilibrium ; Earnings ; Economics ; Economy ; Economy, business and finance ; Finance ; Fiscal policy ; Government ; Incomplete markets ; Interest ; Interest rate ; Labor ; Labour economics ; Lagrange multiplier ; Macro economics ; Macroeconomic ; Macroeconomics ; Macroeconomy ; Mathematics ; Monetary policy ; Politics ; Recession ; Science and technology ; Social sciences ; Taylor rule</subject><ispartof>(Optimal) Monetary Policy with and Without Debt, 2021, Vol.2021-5</ispartof><tpages>1 online resource (59 pages).</tpages><format>1 online resource (59 pages).</format><woscitedreferencessubscribed>false</woscitedreferencessubscribed><relation>Staff Working Paper</relation></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><link.rule.ids>306,780,784,786</link.rule.ids></links><search><creatorcontrib>Chafwehé, Boris</creatorcontrib><creatorcontrib>Oikonomou, Rigas</creatorcontrib><creatorcontrib>Priftis, Romanos</creatorcontrib><creatorcontrib>Coherent Digital (Firm)</creatorcontrib><creatorcontrib>Canadian Electronic Library (Firm)</creatorcontrib><title>(Optimal) Monetary Policy with and Without Debt</title><title>(Optimal) Monetary Policy with and Without Debt</title><description>'We propose a framework of optimal monetary policy where debt sustainability may, or may not, be a relevant constraint for the central bank. We show analytically that in each environment the optimal interest rate path consists of a Taylor rule augmented with forward guidance terms. These terms arise either i) from 'twisting interest rates' when the central bank ensures debt sustainability, or ii) under no debt concerns, from committing to keep interest rates low at the exit of the liquidity trap. The optimal policy is isomorphic to Leeper's (1991) 'passive monetary/active fiscal policy' regime in the first instance, or 'active monetary/passive fiscal policy' regime in the second. We insert our framework into a standard medium scale DSGE model calibrated to the US. Optimal passive monetary policy with debt concerns is ineffective in stabilizing inflation, whereas under no debt concerns, monetary policy is very effective in stabilizing the macroeconomy'--Abstract, page ii.</description><subject>Business finance</subject><subject>Business information</subject><subject>Central bank</subject><subject>Credit and debt</subject><subject>Dsge</subject><subject>Dsge model</subject><subject>Dsge models</subject><subject>Dynamic stochastic general equilibrium</subject><subject>Earnings</subject><subject>Economics</subject><subject>Economy</subject><subject>Economy, business and finance</subject><subject>Finance</subject><subject>Fiscal policy</subject><subject>Government</subject><subject>Incomplete markets</subject><subject>Interest</subject><subject>Interest rate</subject><subject>Labor</subject><subject>Labour economics</subject><subject>Lagrange multiplier</subject><subject>Macro economics</subject><subject>Macroeconomic</subject><subject>Macroeconomics</subject><subject>Macroeconomy</subject><subject>Mathematics</subject><subject>Monetary policy</subject><subject>Politics</subject><subject>Recession</subject><subject>Science and technology</subject><subject>Social sciences</subject><subject>Taylor rule</subject><issn>1701-9397</issn><fulltext>true</fulltext><rsrctype>book</rsrctype><creationdate>2021</creationdate><recordtype>book</recordtype><recordid>eNotjstqwzAQRbVIoSHNP2hV0oXpaGRZmmVIn5CSQgtdCmkiU4Njp7ZK8d_X0K7uOZvDXYilsqAK0mQvxXocmwiIGklZuxS3m8M5N6fQ3siXvks5DJN87duGJ_nT5E8ZuqP8mKH_zvIuxXwlLurQjmn9vyvx9nD_vnsq9ofH5912X7C1VaGr2hGyMSFVGoCIwChtyB25THXJNQWrnCMu3WwIquLEkUoTMUbr9Epc_1U5tf48zP-GySN4A-AVGkLPrvvSpH8BF049Qw</recordid><startdate>2021</startdate><enddate>2021</enddate><creator>Chafwehé, Boris</creator><creator>Oikonomou, Rigas</creator><creator>Priftis, Romanos</creator><general>Bank of Canada</general><scope>AAJPT</scope></search><sort><creationdate>2021</creationdate><title>(Optimal) Monetary Policy with and Without Debt</title><author>Chafwehé, Boris ; Oikonomou, Rigas ; Priftis, Romanos</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c776-36f892c55ae63009990513598dc4ef4cf9a71889c48f4c2016cecb945b2bb783</frbrgroupid><rsrctype>books</rsrctype><prefilter>books</prefilter><language>eng</language><creationdate>2021</creationdate><topic>Business finance</topic><topic>Business information</topic><topic>Central bank</topic><topic>Credit and debt</topic><topic>Dsge</topic><topic>Dsge model</topic><topic>Dsge models</topic><topic>Dynamic stochastic general equilibrium</topic><topic>Earnings</topic><topic>Economics</topic><topic>Economy</topic><topic>Economy, business and finance</topic><topic>Finance</topic><topic>Fiscal policy</topic><topic>Government</topic><topic>Incomplete markets</topic><topic>Interest</topic><topic>Interest rate</topic><topic>Labor</topic><topic>Labour economics</topic><topic>Lagrange multiplier</topic><topic>Macro economics</topic><topic>Macroeconomic</topic><topic>Macroeconomics</topic><topic>Macroeconomy</topic><topic>Mathematics</topic><topic>Monetary policy</topic><topic>Politics</topic><topic>Recession</topic><topic>Science and technology</topic><topic>Social sciences</topic><topic>Taylor rule</topic><toplevel>online_resources</toplevel><creatorcontrib>Chafwehé, Boris</creatorcontrib><creatorcontrib>Oikonomou, Rigas</creatorcontrib><creatorcontrib>Priftis, Romanos</creatorcontrib><creatorcontrib>Coherent Digital (Firm)</creatorcontrib><creatorcontrib>Canadian Electronic Library (Firm)</creatorcontrib><collection>Canada Commons: Books & Documents</collection></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Chafwehé, Boris</au><au>Oikonomou, Rigas</au><au>Priftis, Romanos</au><aucorp>Coherent Digital (Firm)</aucorp><aucorp>Canadian Electronic Library (Firm)</aucorp><format>book</format><genre>book</genre><ristype>BOOK</ristype><atitle>(Optimal) Monetary Policy with and Without Debt</atitle><btitle>(Optimal) Monetary Policy with and Without Debt</btitle><seriestitle>Staff Working Paper</seriestitle><date>2021</date><risdate>2021</risdate><volume>2021-5</volume><issn>1701-9397</issn><abstract>'We propose a framework of optimal monetary policy where debt sustainability may, or may not, be a relevant constraint for the central bank. 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| identifier | ISSN: 1701-9397 |
| ispartof | (Optimal) Monetary Policy with and Without Debt, 2021, Vol.2021-5 |
| issn | 1701-9397 |
| language | eng |
| recordid | cdi_cel_primary_20_500_12592_c8nq39 |
| source | Elektronische Zeitschriftenbibliothek - Frei zugängliche E-Journals |
| subjects | Business finance Business information Central bank Credit and debt Dsge Dsge model Dsge models Dynamic stochastic general equilibrium Earnings Economics Economy Economy, business and finance Finance Fiscal policy Government Incomplete markets Interest Interest rate Labor Labour economics Lagrange multiplier Macro economics Macroeconomic Macroeconomics Macroeconomy Mathematics Monetary policy Politics Recession Science and technology Social sciences Taylor rule |
| title | (Optimal) Monetary Policy with and Without Debt |
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