time consistent public policy in this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure we characterize and solve for markov perfect equilibria of the dynamic game between successive governments the characterization consists of an inter temporal first order condition a generalized euler equation for the government and we use it both to gain insight into the nature of the equilibrium and as a basis for computations for a calibrated economy we find that when the only tax base available to the government is capital income an inelastic source of funds at any point in time the government still refrains from taxing at confiscatory rates we also find that when the only tax base is labour income the markov equilibrium features less public expenditure and lower tax rates than the ramsey equilibrium

compatibility between monetary and fiscal policy under emu the debate over the stability and growth pact sgp as a part of european monetary union has highlighted the need to assess the extent to which fiscal policies of union members should be constrained as a pre requisite for price stability within the union in this paper we develop a two country open economy model where each country has overlapping generations of finitely lived consumers who supply labour to imperfectly competitive firms which can only change their prices infrequently we examine the case where the two countries have formed a monetary union but where the fiscal authorities remain independent we show that the fiscal response required to ensure stability of the real debt stock is greater when consumers are not infinitely lived in principle this allows for some compensating behaviour between governments but we show that the scope for compensation is limited the monetary authority can abandon its active targeting of inflation to stabilise the debt of at most one fiscal authority and any other combination of policies will either result in price level indeterminacy and or indefinite transfers of wealth between the two economies finally in a series of simulations we show that fiscal shocks have limited impact on output and inflation provided the fiscal authorities meet the weak requirements of fiscal solvency however when monetary policy is forced to abandon its active targeting of inflation then fiscal shocks have a much greater impact on both output and inflation

optimal monetary policy when lump sum taxes are unavailable a reconsideration of the outcomes under commitment and discretion we re examine optimal monetary policy when lump sum taxes are unavailable under commitment we show that with alternative utility functions to that considered in nicolini s related analysis the direction of the incentive to cheat may depend on the initial level of government debt with low debt creating an incentive towards surprise deflation but high debt the reverse under discretion we show that the economy will not necessarily tend to the friedman rule as obstfeld found instead it may tend to the critical debt level at which there is no cheating incentive under commitment and inflation and could well be positive here

interactions between monetary and fiscal policy rules the fiscal stability pact for emu implies that constraints on fiscal policy facilitate inflation control in this paper we identify two stable policy regimes when monetary policy seeks to raise real interest rates in response to excess inflation a self stabilising fiscal policy is required to ensure model stability a fiscal policy which does not by itself ensure fiscal solvency constrains monetary policy to be relatively passive however in simulations we conclude that the central bank does not need to seek on this account the degree of debt stabilisation that appears to be implied by the fiscal stability pact

monetary and fiscal policy interactions in a new keynesian model with capital accumulation and non ricardian consumers the paper examines simple monetary and fiscal policy rules consistent with determinate equilibrium dynamics in the absence of ricardian equivalence under this assumption government debt turns into a relevant state variable which needs to be accounted for in the analysis of equilibrium dynamics the key analytical finding is that without explicit reference to the level of government debt it is not possible to infer how strongly the monetary and fiscal instruments should be used to ensure determinate equilibrium dynamics specifically we identify bifurcations associated with threshold values of steady state debt leading to qualitative changes in the local determinacy requirements

a model of currency depreciation and the debt inflation spiral abstract this paper shows how a government that cannot make credible policy commitments might manage its exchange rate and fiscal stance in a world of rational expectations the dynamic game model developed here potentially can generate diverse patterns of macroeconomic behavior patterns that differ as a result of assumed differences in government objectives under some types of government the ongoing strategic interaction between the public and private sectors leads to a disinflationary outcome other governments may push the economy into a spiral of rising debt and inflation

escaping expectation traps how much commitment is required we study the degree of precommitment that is required to eliminate multiplicity of policy equilibria which arise if the policy maker acts under pure discretion we apply a framework developed by schaumburg and tambalotti 2007 and debertoli and nunes 2010 to a standard new keynesian model with government debt we demonstrate the existence of expectation traps under limited commitment and identify the minimum degree of commitment which is needed to escape from these traps we find that the degree of precommitment which is sufficient to generate uniqueness of the pareto preferred equilibrium requires the policy maker to stay in office for a period of two to five years this is consistent with monetary policy arrangements in many developed countries

optimal fiscal feedback on debt in an economy with nominal rigidities we examine the impact of different degrees of fiscal feedback on debt in an economy with nominal rigidities where monetary policy is optimal we look at the extent to which different degrees of fiscal feedback enhances or detracts from the ability of the monetary authorities to stabilise output and inflation using an objective function derived from utility we find the optimal level of fiscal feedback to be small there is a clear discontinuity in the behaviour of monetary policy and welfare either side of this optimal level as the extent of fiscal feedback increases optimal monetary policy becomes less active because fiscal feedback tends to deflate inflationary shocks however this fiscal stabilisation is less efficient than monetary policy and so welfare declines in contrast if fiscal feedback falls below some critical value either the model becomes indeterminate or optimal monetary policy becomes strongly passive and this passive monetary policy leads to a sharp deterioration in welfare

government size and macroeconomic stability abstract we analyze the effects of government size on output variability in the context of a rbc model in which government size is parameterized by the income tax rate and the share of government purchases in output the model implies that i income taxes are destabilizing and ii for most specifications considered government purchases are stabilizing we compare those predictions with the results of simple cross country regressions using data for 22 oecd countries the estimated relationship between empirical indicators of government size and measures of gdp variability appears far stronger than the model predicts and often has the opposite sign

an s 1 s inventory system with emergency orders in this paper we develop an approximate model of an inventory control system in which there exist two options for resupply with one having a shorter lead time we assume that demand and the fixed ordering costs are small relative to the holding cost so that a one for one ordering policy is appropriate we consider a policy for placing emergency orders that uses information about the age of outstanding orders we derive the steady state behavior of this policy and present some computational results

an investigation of the gains from commitment in monetary policy this paper proposes a simple framework for analyzing a continuum of monetary policy rules characterized by differing degrees of credibility in which commitment and discretion become special cases of what we call quasi commitment the monetary policy authority is assumed to formulate optimal commitment plans to be tempted to renege on them and to succumb to this temptation with a constant exogenous probability known to the private sector by interpreting this probability as a continuous measure of the lack of credibility of the monetary policy authority we investigate the welfare effect of a marginal increase in credibility our main finding is that in a simple model of the monetary transmission mechanism most of the gains from commitment accrue at relatively low levels of credibility in our benchmark calibration a commitment expected to last for only 6 quarters is enough to bridge 75 of the welfare gap between discretion and commitment this seems to justify the well known concern of monetary policy makers about their credibility even in a world with limited access to commitment technologies

optimal monetary policy in open versus closed economies an integrated approach in clarida et al 1999 hereafter cgg we presented a normative analysis of monetary policy within a simple optimization based closedeconomy framework we derived the optimal policy rule and among other things characterized the gains from commitment also we made precise the implications for the kind of instrument feedback rule that a central bank should follow in practice in this paper we show how our analysis extends to the case of a small open economy openness complicates the problem of monetary management to the extent the central bank must take into account the impact of the exchange rate on real activity and inflation how to factor the exchange rate into the overall design of monetary policy accordingly becomes a central consideration here we show that under certain conditions the monetary policy design problem for the small open economy is isomorphic to the problem of the closed economy that we considered earlier hence all our qualitative results for the closed economy carry over to this case openness does affect the parameters of the model suggesting quantitative implications though the general form of the optimal interest rate feedback rule remains the same as in the closedeconomy case for example how aggressively a central bank should adjust the interest rate in response to inflationary pressures depends on the degree of openness in addition openness gives rise to an important distinction between domestic inflation and consumer price inflation as defined by the cpi to the extent that there is perfect exchange rate pass through we find that the central bank should target domestic inflation and allow the exchange rate to float despite the impact of the resulting exchangerate variability on the cpi kosuki aoki 1999 gali and tommaso monacelli 2000

public sector debt dynamics the persistence and sources of shocks to debt in 10 eu countries this paper characterises the time series properties of debt gdp ratios in ten eu countries over the period 1982 2009 it establishes that shocks to debt ratios persist and measures the size and source of the permanent effects of shocks as they evolve over time the analysis shows that debt dynamics in the eu10 are complicated involving important inter country interactions and protracted adjustment periods of the order of ten years we find evidence of asymmetries in the effects of different forms of fiscal consolidation with unanticipated reductions in government spending having a more permanent effect than unanticipated increases in government revenue unanticipated business cycle fluctuations also have important long term effects on the ratio

modelling labour market adjustment to trade liberalisation in an industrialising economy this paper investigates labour market responses to trade liberalisation in an industrialising country short and long run responses of employment and wages are examined using a specific factor trade model which underpins the empirical work employment and wage equations are estimated using dynamic panel techniques for importable and exportable sectors in mauritius and for a period covering both the pre and post liberalisation regimes the empirical testing finds some support for the theoretical predictions of differential responses between sectors increases in female participation however appear to have dampened the adjustment burdens of liberalisation on importables there is relatively little evidence available about the effects of trade induced shifts in the composition of demand on inter industry employment and wage levels in developing countries analyses of the factor content of imports and exports suggest that a shift from import substitution is to export promotion ep policies will typically in the case of a developing country expand the more labour intensive industries increase labour demand overall and drive up real wages in the long run but trade liberalisation and increased foreign competition may not only affect the composition of the tradeables goods sector i e the distribution between importables and exportables they may also affect both the efficiency with which all firms use factors including labour and the distribution of output within a sector between more and less efficient firms thus the net long run effects of trade liberalisation on employment will depend upon the balance of structural and efficiency effects which cannot be identified from analyses of the composition of trade alone further we must also recognise that the short and long run effects of trade liberalisation on employment and wages may diverge the divergence depending on the degree of factor mobility and the competitiveness of labour markets the aim of this paper is to model labour market adjustment to trade liberalisation in an industrialisingz country it will do so using panel data evidence for mauritius an economy that has undergone significant trade liberalisation and transformation during the 1980s indeed mauritius is viewed simultaneously as a successful liberaliser and an economy with extensive government intervention in the labour market it provides a valuable test base

optimal ordering policies for periodic review systems with replenishment cycles in this paper we consider inventory models for periodic review systems with replenishment cycles which consist of a number of periods by replenishment cycles we mean that an order is always placed at the beginning of a cycle we use dynamic programming to formulate both the backorder and lost sales models and propose to charge the holding and shortage costs based on the ending inventory of periods rather than only on the ending inventory of cycles since periods can be made any time units to suit the needs of an application this approach in fact computes the holding cost based on the average inventory of a cycle and the shortage cost in proportion to the duration of shortage for the backorder model and remedies the shortcomings of the heuristic or approximate treatment of such systems hadley and whitin analysis of inventory systems prentice hall englewood cliffs nj 1963 we show that a base stock policy is optimal for the backorder model while the optimal order quantity is a function of the on hand inventory for the lost sales model moreover for the backorder model we develop a simple expression for computing the optimal base stock level for the lost sales model we derive convergence conditions for obtaining the optimal operational parameters

estimated general equilibrium models for the evaluation of monetary policy in the us and europe a persistent criticism of general equilibrium models of monetary policy which incorporate nominal inertia in the form of the new keynesian phillips curve nkpc is that they fail to capture the extent of inflation inertia in the data in this paper we derive a general equilibrium model based on optimising behaviour but which also implies a data consistent nkpc specifically our model accounts for nominal inertia in both price and wage setting as well for habits in consumption using us and european data from 1970 to 1998 our parameter estimates reveal that i there is relatively more inertia in price setting in europe ii wage contracts last longer in the us iii the extent of backward looking behaviour in price and wage setting is statistically significant but small in both the us and europe and iv significant habits effects are present in european consumption finally we simulate the effects of monetary policy and find that while the magnitude of the impact of monetary policy on the endogenous variables in our estimated models are similar to other econometric studies the dynamic paths for variables display less inertia than is typically found in studies which use output gaps to proxy changes in marginal costs

solution and estimation of re macromodels with optimal policy macro models of monetary policy typically involve forward looking behavior except in rare circumstances we have to apply some numerical method to find the optimal policy and the rational expectations equilibrium this paper summarizes a few useful methods and shows how they can be combined with a kalman filter to estimate the deep model parameters with maximum likelihood simulations of a macro model with staggered price setting interest rate elastic output and optimal monetary policy illustrate the properties of this estimation approach

government debt and optimal monetary and fiscal policy how do different levels of government debt affect the optimal conduct of monetary and fiscal policies and what do these optimal policies imply for the evolution of government debt over time to provide an answer this paper studies a standard monetary policy model with nominal rigidities and monopolistic competition and adds to it a fiscal authority that issues nominal non state contingent debt levies distortionary labor income taxes and determines the level of public goods provision higher government debt levels make it optimal to reduce public spending so as to dampen the adverse incentive effects of distortionary taxes but also strongly influence the optimal stabilization response following technology shocks in particular higher debt levels give rise to larger risks to the fiscal budget and to tax rates this makes it optimal to reduce government debt over time the optimal speed of debt reduction is missed when using first order approximations to optimal policies but is shown to be quantitatively significant in a second order approximation especially when technology movements are largely unpredictable in nature

fiscal sustainability in a new keynesian model recent work on optimal monetary and fiscal policy in new keynesian models suggests that it is optimal to allow steady state debt to follow a random walk in this paper we consider the nature of the time inconsistency involved in such a policy and its implication for discretionary policymaking we show that governments are tempted given inflationary expectations to utilize their monetary and fiscal instruments in the initial period to change the ultimate debt burden they need to service we demonstrate that this temptation is only eliminated if following shocks the new steady state debt is equal to the original efficient debt level even though there is no explicit debt target in the government s objective function analytically and in a series of numerical simulations we show which instrument is used to stabilize the debt depends crucially on the degree of nominal inertia and the size of the debt stock we also show that the welfare consequences of introducing debt are negligible for precommitment policies but can be significant for discretionary policy finally we assess the credibility of commitment policy by considering a quasi commitment policy which allows for different probabilities of reneging on past promises

vertical and horizontal intra industry trade a cross industry analysis for the united kingdom a large theoretical literature has emerged directed at explaining the presence of intra industry trade iit one of the distinctions which comes out of these models is that between horizontal iit where goods are differentiated by attributes and vertical iit where goods are differentiated by quality in this paper horizontal and vertical iit in u k trade are disentangled using a unit value dispersion criterion and a range of industry characteristics the paper not only points up the relative importance of vertical and horizontal iit in the united kingdom it also demonstrates how a failure to separate them out can impact on the interpretation of empirical results copyright 1995 by royal economic society

technology shocks in the new keynesian model in the new keynesian model preference cost push and monetary shocks all compete with the real business cycle model s technology shock in driving aggregate fluctuations a version of this model estimated via maximum likelihood points to these other shocks as being more important for explaining the behavior of output inflation and interest rates in the postwar u s data these results weaken the links between the current generation of new keynesian models and the real business cycle models from which they were originally derived they also suggest that federal reserve officials have often faced difficult trade offs in conducting monetary policy

optimal fiscal and monetary policy some recent results this paper studies the quantitative properties of fiscal and monetary policy in business cycle models in terms of fiscal policy optimal labor tax rates are virtually constant and optimal capital income tax rates are close to zero on average in terms of monetary policy the friedman rule is optimal nominal interest rates are zero and optimal monetary policy is activist in the sense that it responds to shocks to the economy

narrow and broad perspectives on trade policy and trade costs how to facilitate trade in madagascar madagascar is a high trade cost and relatively closed economy the wto s latest trade policy review tpr for the country like all tprs concentrates on border sources of trade costs those induced by trade policy instruments such as tariffs or implicit taxes imposed by slow and costly customs procedures or trade documentation requirements this narrow focus for trade policy and facilitation misses the substantive within and beyond the border sources of trade costs experienced by traders in a country like madagascar this paper illustrates the nature and significance of a narrow and broad view of trade costs and trade facilitation for this relatively remote and internally land locked economy

on a multi period supply chain system with supplementary order opportunity abstract this paper considers a supplementary supply order system in a multi period situation in each period the buyer first places an initial order based on the demand prediction he has the opportunity to place a supplementary order with the supplier after the demand of that period is realized the supplier maintains an inventory and decides the quantity to be produced and the quantity to be provided for the supplementary order in each time period we formulate the problem as a multi period inventory game and derive the optimal production and order policies for the supplier and buyer respectively the existence and uniqueness of nash equilibrium is proved in the generalized multi period setting and the closed form nash equilibrium solution is obtained when the parameters are stationary numerical study is performed to reveal more managerial insights we find that the supplementary supply order mechanism if designed properly can effectively improve the multi period supply chain performance

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

optimal fiscal and monetary policies in the face of rare disasters this paper studies optimal fiscal and monetary policies in an economy exposed to large adverse shocks rare disasters we contrast optimal policies under commitment and discretion and identify several striking differences between these institutional environments a government that can commit to its policy plans relies heavily on debt to smooth the adverse effects of large shocks over time lack of commitment seriously limits the government s ability to use debt as a shock absorber under discretion an increase in debt leads to an increase in inflation expectations and therefore higher nominal interest rate distortions hence the discretionary government keeps debt in close vicinity of its steady state level and the response of taxes inflation and interest rates to shocks is much more pronounced under discretion than under commitment this is particularly relevant for large shocks and when the initial stock of government debt is already high at the time the shock occurs we also argue that the adverse welfare effects of disasters are larger under discretion than under commitment but these welfare differentials can be significantly reduced by making the discretionary government inflation averse

a natural experiment for identifying the impact of natural trade barriers on exports abstract the paper investigates the relative importance of trade policy and natural sources of export taxation in malawi a landlocked african economy these sources of export taxation are in turn used to explore how export supply would respond to trade liberalisation as opposed to measures which lower other international trade costs the findings indicate that trade policy barriers are now only a limited source of true export taxation and that trade policy reform needs to be complemented with reforms to reduce international trade including transport costs

a periodic review inventory model with two delivery modes fractional lead times and age and period dependent backlogging costs abstract we examine a periodic review inventory model where the buyer has access to a mix of two delivery modes for the quantity it orders in a period these include an emergency delivery mode that delivers instantaneously and a regular delivery mode that delivers within the length of the review period the unmet demand is backordered and charged a backlogging cost that varies with the length of the backlogging time the excess inventory is charged a holding cost the unit costs for the delivery modes could be different we show that the well known base stock policy structure remains optimal for this problem under mild conditions

dealing with a liquidity trap when government debt matters optimal time consistent monetary and fiscal policy how does the need to preserve government debt sustainability affect the optimal monetary and fiscal policy response to a liquidity trap to provide an answer we employ a small stochastic new keynesian model with a zero bound on nominal interest rates and characterize optimal time consistent stabilization policies we focus on two policy tools the short term nominal interest rate and debt financed government spending the optimal policy response to a liquidity trap critically depends on the prevailing debt burden while the optimal amount of government spending is decreasing in the level of outstanding government debt future monetary policy is becoming more accommodative triggering a change in private sector expectations that helps to dampen the fall in output and inflation at the outset of the liquidity trap

more on the time consistency of monetary policy abstract we introduce costs of unexpected inflation in a general equilibrium monetary model by changing the timing of the constraints faced by consumers we show that in this environment monetary policy is still time inconsistent but the nature of the inconsistency is very different from the standard result found in the literature in particular we find that the government may find optimal to deviate by choosing inflation rates lower than expected by making a brief review of the monetary literature we argue that the model of this paper is more attractive than the ones proposed before to study the time consistency of optimal monetary policy

monetary and fiscal policy under deep habits allowing habits to be formed at the level of individual goods deep habits can radically alter the fiscal policy transmission mechanism as the counter cyclicality of mark ups this implies can result in government spending crowding in rather than crowding out private consumption in the short run we explore the robustness of this mechanism to the existence of price discrimination in the supply of goods to the public and private sectors we then describe optimal monetary and fiscal policy in our new keynesian economy subject to the additional externality of deep habits and explore the ability of simple policy rules to mimic fully optimal policy we find that the presence of deep habits at empirically estimated levels can imply large externalities that significantly affect the conduct of monetary and tax policy however despite the rise in government spending multipliers implied by deep habits government spending is barely used as a stabilisation tool under the optimal policy

optimal replenishment for a periodic review inventory system with two supply modes abstract in this paper we study periodic inventory systems with long review periods we develop dynamic programming models for these systems in which regular orders as well as emergency orders can be placed periodically we identify two cases depending on whether or not a fixed cost for placing an emergency order is present we show that if the emergency supply mode can be used there exists a critical inventory level such that if the inventory position at a review epoch falls below this critical level an emergency order is placed we also develop simple procedures for computing the optimal policy parameters in all cases the optimal order up to level is obtained by solving a myopic cost function thus the proposed ordering policies are easy to implement

quantifying and sustaining welfare gains from monetary commitment abstract our objectives are to quantify the stabilization welfare gains from commitment to examine how commitment to an optimal rule can be sustained as an equilibrium to find a simple interest rate rule that approximates the optimal commitment one we utilize an empirical micro founded euro area dsge model a quadratic approximation of household utility as the welfare criterion employing a nominal interest rate lower bound in contrast to previous studies we find significant commitment stabilization gains of around a 0 4 0 5 equivalent permanent consumption increase and with higher price stickiness gains over 2 we find that a simple optimized commitment rule responding to inflation and the real wage mimics the optimal one

comparing shocks and frictions in us and euro area business cycles a bayesian dsge approach this paper estimates a dsge model with many types of shocks and frictions for both the us and the euro area economy over a common sample period 1974 2002 the structural estimation methodology allows us to investigate whether differences in business cycle behaviour are due to differences in the type of shocks that affect the two economies differences in the propagation mechanism of those shocks or differences in the way the central bank responds to those economic developments our main conclusion is that each of these characteristics is remarkably similar across both currency areas copyright 2005 john wiley sons ltd

effective protection policy appraisal and trade policy reform when the effective protection concept was rst developed it was widely regarded as a key widely used especially in the context of policy reform and policy appraisal in developing countries this paper re appraises tmeasure of the structure of protection and became widely deployed it was however subject to a he concept reviews the extent of its application and discusses the factors behind its longevity as an investigative tool the theoretical critique on the grounds that it was essentially a partial equilibrium measure which could not be easily embedded ipaper concludes that the measure still has a role to play in evaluating the structure of protection n a general equilibrium framework notwithstanding this critique the concept has continued to be

true protection concepts and their role in evaluating trade policies in ldcs in many ldcs it is not uncommon to find incentives designed to encourage import substitution activities coexisting alongside incentives aimed at encouraging export activities this article evaluates a recent approach to evaluating commercial policy which among other things highlights some of the implications of simultaneously pursuing import substitution and export promotion the study develops a model which emphasises the incidence of protection and identifies the concept of true protection empirical results for a number of ldcs are discussed and the implications of these results evaluated in addition the article contrasts this approach with the effective protection approach to evaluating commercial policy

myopic solutions of markov decision processes and stochastic games sufficient conditions are presented for a markov decision process to have a myopic optimum and for a stochastic game to possess a myopic equilibrium point an optimum or an equilibrium point is said to be myopic if it can be deduced from an optimum or an equilibrium point of a static optimization problem or a static nash game the principal conditions are a each single period reward is the sum of terms due to the current state and action b each transition probability depends on the action taken but not on the state from which the transition occurs and c an appropriate static optimum or equilibrium point is ad infinitum repeatable these conditions are satisfied by several dynamic oligopoly models and numerous markov decision processes

a continuous review model for an inventory system with two supply modes in this paper we develop an approximate model of an inventory control system in which there exist two options for resupply with one having a shorter lead time because the optimal policy appears to be extremely complex we consider a reasonable extension of the standard q r policy to allow for two different lot sizes q1 and q2 and two different reorder levels r1 and r2 expressions for the expected on hand inventory and the expected backorders are developed and a procedure for determining the policy parameters is given the model is validated by simulation and calculations are included which compare the average annual cost with and without emergency ordering

uncertain fiscal consolidations the paper explores the macroeconomic consequences of fiscal consolidations whose timing and composition are uncertain drawing on the evidence in alesina and ardagna 2010 we emphasize whether or not the fiscal consolidation is driven by tax rises or expenditure cuts we find that the composition of the fiscal consolidation its duration the monetary policy stance the level of government debt and expectations over the likelihood and composition of fiscal consolidations all matter in determining the extent to which a given consolidation is expansionary and or successful in stabilizing government debt

fiscal policy under loose commitment due to time inconsistency or political turnover policymakers promises are not always fulfilled we analyze an optimal fiscal policy problem where the plans made by the benevolent government are periodically revised in this loose commitment setting the properties of labor and capital income taxes are significantly different than under the full commitment and no commitment assumptions because of the occasional reoptimizations the average capital income tax is positive even in the long run also the autocorrelation of taxes is lower their volatility with respect to output increases and the correlation between capital income taxes and output changes sign our method can be used to analyze the plausibility and the importance of commitment in a wide class of dynamic problems

optimal fiscal and monetary policy under sticky prices this paper studies optimal fiscal and monetary policy under sticky product prices the theoretical framework is a stochastic production economy without capital the government finances an exogenous stream of purchases by levying distortionary income taxes printing money and issuing one period nominally risk free bonds the main findings of the paper are first for a miniscule degree of price stickiness i e many times below available empirical estimates the optimal volatility of inflation is near zero this result stands in stark contrast with the high volatility of inflation implied by the ramsey allocation when prices are flexible the finding is in line with a recent body of work on optimal monetary policy under nominal rigidities that ignores the role of optimal fiscal policy second even small deviations from full price flexibility induce near random walk behavior in government debt and tax rates third sluggish price adjustment raises the average nominal interest rate above the one called for by the friedman rule finally an interest rate feedback rule whereby the nominal interest rate depends on inflation and output fits well the data emanating from the ramsey economy however the fitted rule is not of the taylor type for the implied inflation coefficient is less than one and close to zero and the output coefficient is negative jel classification e52 e61 e63

a life s work on trade and development this paper reflects on the career contributions of professor chris milner to the literature on international trade and economic development as such it not only provides an overview of a life s work but also sets the context for the nine papers which follow all of these were specially written for this special issue of the world economy and all relate to different areas that professor milner worked in

declining protection in developing countries fact or fiction this paper explores whether and to what extent evident trade reform falling average tariffs and rising exports in recent decades overstate the extent to which protectionism has declined in developing countries especially low income developing countries it identifies remaining significant protection especially of final manufactured goods this being associated with the presence of peak tariffs escalating tariff structures by stage of production and replacement of old forms of non tariff protection with new instruments of non tariff protection it also identifies significant protection arising from high international trade costs induced by inefficiencies in transportation ports and customs and from the growth of exports to preference receiving export markets

fiscal dependence on trade taxes and trade policy reform the article focuses on fiscal implications of structural adjustment loans sals from an a priori standpoint and by reference to the experience of five countries three of these countries have had revenue enhancement after trade policy reforms and the other two cases experienced revenue depletion the central point which emerges from the study is that it is not clear that trade liberalisation leads to fiscal enhancement or fiscal depletion both a priori the orising and country analyses demonstrate that a range of outcomes is possible depending upon initial conditions and the components of any reform package

monetary and fiscal policy interaction the current consensus assignment in the light of recent developments in the last few years papers have begun to analyse optimal monetary and fiscal policy in models incorporating nominal rigidities where social welfare is derived from the utility of agents this article examines whether this analysis provides support for the consensus assignment where monetary policy controls demand and inflation and fiscal policy controls government debt we argue that the basic structure of new keynesian models implies that monetary policy dominates fiscal policy as a means of controlling inflation no similar dominance appears to operate for fiscal policy and debt if debt has to return to its initial level after shocks

policy and non policy barriers to trade and implicit taxation of exports in uganda uganda has made significant progress in reducing policy induced anti export bias in its trade policy in the 1990s taxes on exports have been abolished and import protection has been reduced considerably such trade barriers are only a component of thee transaction costs associated with trade poor infrastructure notably by increasing transport costs and institutional inefficiencies can significantly increase trade costs the effective protection of imports and implicit tax on exports due to transport costs is calculated and compared to effective protection due to trade policy barriers for uganda the results reveal that transport costs are often very high in many cases representing a greater cost tax to exporters than trade policy