https://www.federalreserve.gov/pubs/feds/2014/201447/201447pap.pdf

OccBin: A toolkit for solving dynamic models with occasionally binding constraints easily

Even low levels of trend inflation substantially affect the dynamics of a basic new Keynesian DSGE model when monetary policy is conducted by a contemporaneous Taylor rule. Positive trend inflation shrinks the determinacy region. Neither the Taylor principle, which requires the inflation coefficient to be greater than one, nor the generalized Taylor principle, which requires that in the long run the nominal interest rate should be raised by more than the increase in inflation, is a sufficient condition for local determinacy of equilibrium. This finding holds for different types of Taylor rules, inertial policy rules and price indexation schemes. Therefore, regardless of the theoretical set up, the monetary literature on Taylor rules cannot disregard average inflation in both theoretical and empirical analysis.

Trend Inflation, Taylor Principle and Indeterminacy

Utilitzant com a marc de referencia una versio canonica del model neokeynesia, Gali explora
temes rellevants per al disseny de la politica monetaria, incloent la determinacio de la politica
monetaria optima i la desitjabilitat de diferents regles de politica senzilles. Gali analitza diferents
extensions del model basic, que incorporen successivament xocs de costos, rigideses
de salaris nominals i factors d?economia oberta. Per a cada cas, es presenten les implicacions
per a la politica monetaria, tot emfatitzant la desitjabilitat de politiques centrades en l?estabilitat
de preus.

Monetary policy, inflation and the business cycle

When the zero lower bound on nominal interest rates binds, monetary policy cannot provide appropriate stimulus. We show that, in the standard New Keynesian model, tax policy can deliver such stimulus at no cost and in a time-consistent manner. There is no need to use inecient policies such as

/pdf/unconventional-fiscal-policy-at-the-zero-bound-81deoab4j1.pdf

Unconventional Fiscal Policy at the Zero Bound

This paper estimates regime-switching rules for monetary policy and tax policy over the post-war period in the United States and imposes the estimated policy process on a calibrated dynamic stochastic general equilibrium model with nominal rigidities. Decision rules are locally unique and produce a stationary long-run rational expectations equilibrium in which (lump-sum) tax shocks always affect output and inflation. Tax non-neutralities in the model arise solely through the mechanism articulated by the fiscal theory of the price level. The paper quantifies that mechanism and finds it to be important in U.S. data, reconciling a popular class of monetary models with the evidence that tax shocks have substantial impacts. Because long-run policy behavior determines existence and uniqueness of equilibrium, in a regime-switching environment more accurate qualitative inferences can be gleaned from full-sample information than by conditioning on policy regime.

/pdf/fluctuating-macro-policies-and-the-fiscal-theory-48ngdpfqfk.pdf

Fluctuating Macro Policies and the Fiscal Theory

This paper analyzes optimal monetary policy in a sticky price model with Calvo-type staggered price-setting. In the paper, the optimal monetary policy maximizes the expected utility of a representative household without having to rely on a set of linearly approximated equilibrium conditions, given the distortions associated with the staggered price-setting. It shows that the complete stabilization of the price level is optimal in the absence of initial price dispersion, while optimal inflation targets respond to changes in the level of relative price distortion in the presence of initial price dispersion.

Tack Yun

Papers

Optimal Monetary Policy with Relative Price Distortions