Economic Models - Convex Optimization
Economic Models - Convex Optimization Economic Models - Convex Optimization
The Advantages of Fiscal Leadership in an Economy 97 why the ECB prefers hard restraints (and why the fiscal policy makers do not), and suggests that the ECB may actually prefer fiscal leadership because of the greater degree of pre-commitment implied. References Barro, RJ (1981). Output effects of government purchases. Journal of Political Economy 89, 1086–1121. Barro, RJ and DB Gordon (1983). Rules, discretion, and reputation in a model of monetary policy. Journal of Monetary Economics 12, 101–121. Basar, T (1989). Time consistency and robustness of equilibria in non-cooperative dynamic games. In Dynamic Policy Games in Economics, F van der Ploeg and A de Zeeuw (eds.), pp. 9–54. Amsterdam: North Holland. Basar, T and G Olsder (1989). Dynamic noncooperative game theory. In Classics in Applied Mathematics, SIAM series, Philadelphia: SIAM. Brandsma, A and A Hughes Hallett (1984). Economic conflict and the solution of dynamic games. European Economic Review 26, 13–32. Buti, M, S Eijffinger and D Franco (2003). Revisiting the stability and growth pact: grand design or internal adjustment? Discussion Paper 3692. London: Centre for Economic Policy Research. Canzoneri, M (2004). A New View on The Transatlantic Transmission of Fiscal Policy and Macroeconomic Policy Coordination. In The Transatlantic Transmission of Fiscal Policy and Macroeconomic Policy Coordination, M Buti (ed.), Cambridge: Cambridge University Press. Currie, DA, G Holtham andA Hughes Hallett (1989). The theory and practice of international economic policy coordination: does coordination pay? In Macroeconomic Policies in an Interdependent World, R Bryant, D Currie, J Frenkel, P Masson and R Portes (eds.), Washington, DC: International Monetary Fund, 125–148. Demertzis, M, A Hughes Hallett and N Yiegi (2004). An Independent Central Bank Faced with Elected Governments: A Political Economy Conflict. In European Journal of Political Economy 20(4), 907–922. Dieppe, A, K Kuster and P McAdam (2004). Optimal monetary policy rules for the Euro Area: an analysis using the area wide model. Working Paper 360. Frankfurt: European Central Bank. Dixit,A (2001). Games of monetary and fiscal interactions in the EMU. European Economic Review 45, 589–613. Dixit, AK and L Lambertini (2003). Interactions of commitment and discretion in monetary and fiscal issues. American Economic Review 93, 1522–1542. Dow, JCR (1964). The Management of the British Economy 1945–1960. Cambridge: Cambridge University Press. European Commission (2002). Public finances in EMU:2002. European Economy: Studies and Reports 4, Brussels: European Commission. Fatas, A, J von Hagen, A Hughes Hallett, R Strauch and A Sibert (2003). Stability and Growth in Europe. London: Centre for Economic Policy Research (MEI-13). Gali, J and R Perotti (2003). Fiscal policy and monetary integration in Europe. Economic Policy 37, 533–571.
98 Andrew Hughes Hallet HM Treasury (HMT) (2003). Fiscal Stabilization and EMU. HM Stationary Office, Cmnd 799373. Norwich: also available from www.hm-treasury.gov.uk. Hughes Hallett, A (1984). Noncooperative strategies for dynamic policy games and the problem of time inconsistency. Oxford Economic Papers 36, 381–399. Hughes Hallett,A (2005). In praise of fiscal restraint and debt rules: what the Euro zone might do now. Discussion Paper 5043. London: Centre for Economic Research, 251–279. Hughes Hallett, A and D Weymark (2002). Government leadership and central bank design. Discussion Paper 3395, London: Centre for Economic Research. Hughes Hallett, A and N Viegi (2002). Inflation targeting as a coordination device. Open Economies Review 13, 341–362. Hughes Hallett, A and D Weymark (2004a). Policy games and the optimal design of central banks. In Money Matters, P Minford (ed.). London: Edward Elgar. Hughes Hallett,A and DWeymark (2004b). Independent monetary policies and social equity. Economics Letters 85, 103–110. Hughes Hallett,A and D Weymark (2005). Independence before conservatism: transparency, politics and central bank design. German Economic Review 6, 1–25. Lucas, RE (1972). Expectations and the neutrality of money. Journal of Economic Theory 4, 103–124. Lucas, RE (1973). Some international evidence on output-inflation trade-offs. American Economic Review 63, 326–334. McCallum, BT (1989). Monetary Economics: Theory and Policy. New York: Macmillan. Svensson, L (2003). What is wrong with Taylor rules? Using judgement in monetary rules through targeting rules. Journal of Economic Literature 41, 426–477. Taylor, JB (1993a). Macroeconomic Policy in a World Economy: From Econometric Design to Practical Operation. New York: W.W. Norton and Company. Taylor, JB (1993b). Discretion vs. policy rules in practice. Carnegie-Rochester Conference Series on Public Policy 39, 195–214. Taylor, JB (2000). Discretionary fiscal policies. Journal of Economic Perspectives 14, 1–23. Turrini, A and J in ‘t Veld (2004). The Impact of the EU Fiscal Framework on Economic Activity. DGII, Brussels: European Commission. Appendix A: Data Sources for Table 3 The data used in Table 3 are set out in the table below. They come from different sources and represent “stylized facts” for the corresponding parameters. The Phillips curve parameter, α, is the inverse of the annualized sacrifice ratios on quarterly data from 1971–1998. The values for β and γ, the impact multipliers for fiscal and monetary policy, respectively, are the one-year simulated multipliers for these policies in Taylor’s multicountry model (Taylor, 1993a). I have calibrated the remaining parameters using stylized facts from 1998: the year that EMU started, and the year that new fiscal and monetary regimes took effect in the United Kingdom and Sweden. Thus, s is the automatic stablizer effect on output according to the European Commission (2002) and HMT (2003) estimates, allowing for larger social
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98 Andrew Hughes Hallet<br />
HM Treasury (HMT) (2003). Fiscal Stabilization and EMU. HM Stationary Office, Cmnd<br />
799373. Norwich: also available from www.hm-treasury.gov.uk.<br />
Hughes Hallett, A (1984). Noncooperative strategies for dynamic policy games and the<br />
problem of time inconsistency. Oxford <strong>Economic</strong> Papers 36, 381–399.<br />
Hughes Hallett,A (2005). In praise of fiscal restraint and debt rules: what the Euro zone might<br />
do now. Discussion Paper 5043. London: Centre for <strong>Economic</strong> Research, 251–279.<br />
Hughes Hallett, A and D Weymark (2002). Government leadership and central bank design.<br />
Discussion Paper 3395, London: Centre for <strong>Economic</strong> Research.<br />
Hughes Hallett, A and N Viegi (2002). Inflation targeting as a coordination device. Open<br />
Economies Review 13, 341–362.<br />
Hughes Hallett, A and D Weymark (2004a). Policy games and the optimal design of central<br />
banks. In Money Matters, P Minford (ed.). London: Edward Elgar.<br />
Hughes Hallett,A and DWeymark (2004b). Independent monetary policies and social equity.<br />
<strong>Economic</strong>s Letters 85, 103–110.<br />
Hughes Hallett,A and D Weymark (2005). Independence before conservatism: transparency,<br />
politics and central bank design. German <strong>Economic</strong> Review 6, 1–25.<br />
Lucas, RE (1972). Expectations and the neutrality of money. Journal of <strong>Economic</strong> Theory<br />
4, 103–124.<br />
Lucas, RE (1973). Some international evidence on output-inflation trade-offs. American<br />
<strong>Economic</strong> Review 63, 326–334.<br />
McCallum, BT (1989). Monetary <strong>Economic</strong>s: Theory and Policy. New York: Macmillan.<br />
Svensson, L (2003). What is wrong with Taylor rules? Using judgement in monetary rules<br />
through targeting rules. Journal of <strong>Economic</strong> Literature 41, 426–477.<br />
Taylor, JB (1993a). Macroeconomic Policy in a World Economy: From Econometric Design<br />
to Practical Operation. New York: W.W. Norton and Company.<br />
Taylor, JB (1993b). Discretion vs. policy rules in practice. Carnegie-Rochester Conference<br />
Series on Public Policy 39, 195–214.<br />
Taylor, JB (2000). Discretionary fiscal policies. Journal of <strong>Economic</strong> Perspectives 14, 1–23.<br />
Turrini, A and J in ‘t Veld (2004). The Impact of the EU Fiscal Framework on <strong>Economic</strong><br />
Activity. DGII, Brussels: European Commission.<br />
Appendix A: Data Sources for Table 3<br />
The data used in Table 3 are set out in the table below. They come from different<br />
sources and represent “stylized facts” for the corresponding parameters.<br />
The Phillips curve parameter, α, is the inverse of the annualized<br />
sacrifice ratios on quarterly data from 1971–1998. The values for β and γ,<br />
the impact multipliers for fiscal and monetary policy, respectively, are the<br />
one-year simulated multipliers for these policies in Taylor’s multicountry<br />
model (Taylor, 1993a). I have calibrated the remaining parameters using<br />
stylized facts from 1998: the year that EMU started, and the year that new<br />
fiscal and monetary regimes took effect in the United Kingdom and Sweden.<br />
Thus, s is the automatic stablizer effect on output according to the European<br />
Commission (2002) and HMT (2003) estimates, allowing for larger social
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