Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/153095 
Year of Publication: 
2006
Series/Report no.: 
ECB Working Paper No. 661
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
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.
Subjects: 
Capital Accumulation
Finite Lifetime
Fiscal Policy
monetary policy
nominal rigidities
Simulations
JEL: 
E52
E58
E63
Document Type: 
Working Paper

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