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    Rights statement: c2014 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/3.0/)

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Monetary and fiscal policy under deep habits

Research output: Contribution to journalJournal article

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Monetary and fiscal policy under deep habits. / Leith, Campbell; Moldovan, Ioana; Rossi, Raffaele.

In: Journal of Economic Dynamics and Control, Vol. 52, 03.2015, p. 55-74.

Research output: Contribution to journalJournal article

Harvard

Leith, C, Moldovan, I & Rossi, R 2015, 'Monetary and fiscal policy under deep habits', Journal of Economic Dynamics and Control, vol. 52, pp. 55-74. https://doi.org/10.1016/j.jedc.2014.11.005

APA

Leith, C., Moldovan, I., & Rossi, R. (2015). Monetary and fiscal policy under deep habits. Journal of Economic Dynamics and Control, 52, 55-74. https://doi.org/10.1016/j.jedc.2014.11.005

Vancouver

Leith C, Moldovan I, Rossi R. Monetary and fiscal policy under deep habits. Journal of Economic Dynamics and Control. 2015 Mar;52:55-74. https://doi.org/10.1016/j.jedc.2014.11.005

Author

Leith, Campbell ; Moldovan, Ioana ; Rossi, Raffaele. / Monetary and fiscal policy under deep habits. In: Journal of Economic Dynamics and Control. 2015 ; Vol. 52. pp. 55-74.

Bibtex

@article{bc3c9726b1b54ea1a729d49ad2316499,
title = "Monetary and fiscal policy under deep habits",
abstract = "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.",
keywords = "Monetary policy, Fiscal policy, Deep habits, New Keynesian",
author = "Campbell Leith and Ioana Moldovan and Raffaele Rossi",
note = "c2014 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/3.0/)",
year = "2015",
month = mar
doi = "10.1016/j.jedc.2014.11.005",
language = "English",
volume = "52",
pages = "55--74",
journal = "Journal of Economic Dynamics and Control",
issn = "0165-1889",
publisher = "Elsevier",

}

RIS

TY - JOUR

T1 - Monetary and fiscal policy under deep habits

AU - Leith, Campbell

AU - Moldovan, Ioana

AU - Rossi, Raffaele

N1 - c2014 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/3.0/)

PY - 2015/3

Y1 - 2015/3

N2 - 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.

AB - 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.

KW - Monetary policy

KW - Fiscal policy

KW - Deep habits

KW - New Keynesian

U2 - 10.1016/j.jedc.2014.11.005

DO - 10.1016/j.jedc.2014.11.005

M3 - Journal article

VL - 52

SP - 55

EP - 74

JO - Journal of Economic Dynamics and Control

JF - Journal of Economic Dynamics and Control

SN - 0165-1889

ER -