Fluctuating macro policies and the fiscal theory
By: Troy Davig, Eric M. Leeper.
Contributors: Leeper, Eric Michael.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 11212; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 11212.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Monetary policy -- United States -- Econometric models.; Taxation -- United States -- Econometric models.; Economic policy -- United States -- Econometric models.; Monetary policy -- United States -- History -- 20th century.
Description: "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"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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