University of California, San Diego
Macroeconomic Theory, Monetary Policy, Fiscal Policy
University of California, San Diego
Economics Department, Office #225
9500 Gilman Drive
La Jolla, CA 92093-0508
Office: (+1) 858 822 0645
Fax: (+1) 858 534 7040
(with R. Nunes) Journal of the European Economic Association, forthcoming
The tendency of countries to accumulate public debt has been rationalized in models of political disagreement and lack of commitment. We analyze in a benchmark model how the evolution of public debt is affected by lack of commitment per se. While commitment introduces indeterminacy in the level of debt, lack of commitment creates incentives for debt to converge to specific levels. One of the levels that debt often converges to implies no debt accumulation at all. In a simple example we prove analytically that debt converges to zero, and we analyze numerically more complex models. We also show in an imperfect credibility setting that a small deviation from fullcommitment is enough to obtain these results.
(with R. Nunes), Journal of Money Credit and Banking, forthcoming
Monetary policy objectives and targets are not necessarily constant over time. The regime-switching literature has typically analyzed and interpreted changes in policymakers' behavior through simple interest rate rules. This paper analyzes policy regime-switches by explicitly modeling policymakers' behavior and objectives. We show that changes in the parameters of simple rules do not necessarily correspond to changes in policymakers' preferences. In fact, capturing and interpreting regime changes in preferences through interest rate rules can lead to misleading results.
(with J. Maih and R. Nunes) Macroeconomic Dynamics, forthcoming
This paper proposes a method and a toolkit for solving optimal policy with imperfect commitment in linear quadratic models. As opposed to the existing literature, our method can be employed in medium- and large-scale models typically used in monetary policy. We apply our method to the Smets and Wouters (2007) model, where we show that imperfect commitment has relevant implications for the interest rate setting, the sources of business cycle fluctuations, and welfare.
(with R. Nunes) Journal of Economic Theory, 145 (3), May 2010
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.
This version: October 2012 (with P. Gomes) -- submitted
The paper analyzes the determinants of four fiscal trends, observed in many developed countries over the past 40 years: a decline in the corporate tax rate and public investment offset by an increase in the labour income tax and government consumption. Within a simple neoclassical growth model with a public sector, we illustrate the interdependency between the two government problems of how to spread the tax burden and how to allocate the spending. We find that investment-specific technological changes account for one third of the change in the composition of taxes and two thirds of the change of the composition on spending
June 2006 (with R. Nunes) | pdf