Since 2009, the G-20 Framework for Strong, Sustainable and Balanced Growth has provided a mechanism for international macroeconomic policy coordination. The Framework has had some successes, including agreement on objectives for fiscal consolidation. However, post-crisis global growth has been neither strong nor balanced. Progress has also been slow in developing credible fiscal consolidation plans in some advanced countries and in increasing exchange rate flexibility in certain emerging economies. A stronger peer review process and enhanced analysis of international spillovers would increase the Framework’s influence on member policies.
Topics: Exchange rate regimes; Fiscal Policy; International topics; Recent economic and financial developmentsThis article discusses three scenarios for the adjustment of the global economy. In a “baseline” scenario—which encompasses fiscal consolidation in major advanced economies, growth-friendly structural reforms in Europe and Japan, and greater exchange rate flexibility and reforms in the emerging-market economies of Asia to induce rotation of demand away from net exports—global current account imbalances are resolved over the medium term and strong global economic growth resumes. In one alternative scenario, in which these conditions are delayed, global imbalances persist and growth is substantially reduced. In the second alternative scenario, in which advanced economies front-load fiscal consolidation, but no rotation of demand takes place in the emerging-market economies of Asia and no structural reforms are implemented in Europe and Japan, even weaker global economic growth occurs in the near term.
Topics: Balance of payments and components; Exchange rates; Fiscal Policy; International topics; Recent economic and financial developmentsAs part of managing a debt portfolio, debt managers face the challenging task of choosing a strategy that minimizes the cost of debt, subject to limitations on risk. The Bank of Canada provides debt-management analysis and advice to the Government of Canada to assist in this task, with the Canadian debt-strategy model being developed to help in this regard.
Topics: Debt Management; Econometric and statistical methods; Financial markets; Fiscal PolicyWe develop a closed economy model to study the interactions among sovereign risk premia, fiscal limits, and fiscal policy. The stochastic fiscal limits, which measure the ability and willingness of the government to service its debt, arise endogenously from a dynamic Laffer curve.
Topics: Fiscal Policy; International topicsThis paper contributes to the debate on fiscal multipliers, in the context of a structural model. I estimate a micro-founded dynamic stochastic general equilibrium model, that features a rich fiscal policy block and a transmission mechanism for government spending shocks, using Bayesian techniques for US data.
Topics: Economic models; Fiscal PolicyThe Bank of Canada Global Economy Model (BoC-GEM) is used to examine the effect of various types of discretionary fiscal policies on different regions of the globe. The BoC-GEM is a microfounded dynamic stochastic general-equilibrium global model with six regions, multiple sectors, and international linkages.
Topics: Business fluctuations and cycles; Fiscal Policy; International topics; Recent economic and financial developmentsThis paper studies the interdependence between fiscal and monetary policy in a DSGE model with sticky prices and non-zero trend inflation. We characterize the fiscal and monetary policies by a rule whereby a given fraction k of the government debt must be backed by the discounted value of current and future primary surpluses.
Topics: Economic models; Fiscal Policy; Inflation: costs and benefits; Monetary policy frameworkIn its role as fiscal agent to the government, the Bank of Canada provides analysis and advice on decisions about the government's domestic debt portfolio. Debt-management decisions depend on assumptions about future interest rates, macroeconomic outcomes, and fiscal policy, yet when a debt-strategy decision is taken, none of these factors can be known with certainty. Moreover, the government has various financing options (i.e., treasury bills, nominal bonds, and inflation-linked bonds) to meet its objectives of minimizing debt-service charges while simultaneously ensuring a prudent risk profile and well-functioning government securities markets. Bank of Canada staff have therefore developed a mathematical model to assist in the decision-making process. This article describes the key aspects of the debt manager's challenge and the principal assumptions incorporated in the debt-strategy model, illustrated with specific results.
Topics: Debt Management; Economic models; Fiscal PolicyThe author examines the global impact of U.S. fiscal policy using the Bank of Canada's Global Economy Model (Lalonde and Muir 2007). In particular, she examines the global macroeconomic implications of the expiration of major tax cuts in the United States and of expected increases in U.S. entitlement program expenditures.
Topics: Fiscal Policy; International topics; Regional economic developmentsThis paper studies the interdependence between fiscal and monetary policies, and their joint role in the determination of the price level.
Topics: Central bank research; Fiscal Policy; Inflation: costs and benefitsThe stochastic simulation model suggested by Bolder (2003) for the analysis of the federal government's debt-management strategy provides a wide variety of useful information. It does not, however, assist in determining an optimal debt-management strategy for the government in its current form.
Topics: Debt Management; Econometric and statistical methods; Financial markets; Fiscal PolicyWe show how to use optimal control theory to derive optimal time-consistent Markov-perfect government policies in nonlinear dynamic general equilibrium models, extending the result of Cohen and Michel (1988) for models with quadratic objective functions and linear dynamics. We replace private agents' costates by flexible functions of current states in the government's maximization problem.
Topics: Fiscal Policy; Monetary policy frameworkThe author empirically assesses the effects of institutional and political factors on the need and willingness of governments to make large fiscal adjustments.
Topics: Development economics; Econometric and statistical methods; Fiscal Policy; International topicsThe author provides an overview of the 1975–78 Anti-Inflation Program (AIP), in a background document prepared for a seminar organized by the Bank of Canada to mark the AIP's 30th anniversary.
Topics: Credibility; Fiscal Policy; Inflation and prices; Inflation targets; Monetary policy framework; Monetary policy implementationThe authors develop a search model of venture capital in which the number of successful matches of entrepreneurs and venture capitalists (VCs) at any moment in time is a function of the number of entrepreneurs searching for funds, the number of VCs searching for entrepreneurs, and the number of vacancies posted by each VC.
Topics: Financial markets; Fiscal Policy; Labour marketsThe author studies the macroeconomic consequences of discretionary changes in the fiscal policy instruments for Canada.
Topics: Economic models; Exchange rates; Fiscal PolicyChoosing a well-designed framework for fiscal and monetary policies is a challenge for economic authorities.
Topics: Fiscal Policy; Monetary policy frameworkEntrepreneurship is a key factor in promoting growth in output and employment. Consequently, to encourage new start-ups, most governments in developed countries have public venture capital programs.
Topics: Financial markets; Fiscal Policy; Labour marketsRecent empirical evidence suggests that private consumption is crowded-in by government spending. This outcome violates existing macroeconomic theory, according to which the negative wealth effect brought about by a rise in public expenditure should decrease consumption.
Topics: Business fluctuations and cycles; Economic models; Fiscal PolicyThe authors study the macroeconomic consequences of large military buildups using a New Neoclassical Synthesis (NNS) approach that combines nominal rigidities within imperfectly competitive goods and labour markets. They show that the predictions of the NNS framework generally are consistent with the sign, timing, and magnitude of how hours worked, after-tax real wages, and output actually respond to an upsurge in military purchases.
Topics: Business fluctuations and cycles; Economic models; Fiscal PolicyOne of the central lessons learned from the Great Depression was that adjusting government spending each year to balance the budget increases the volatility of output.
Topics: Economic models; Fiscal Policy; Transmission of monetary policyThis paper describes the positive effect that corporate income tax has on capital formation in the presence of liquidity constraints and uninsurable risk.
Topics: Economic models; Fiscal PolicyThis paper confirms the conjecture that the evaluation of tax policy leads to very different conclusions once the role of entrepreneurs is considered. Contrary to previous literature, the author finds that switching from a progressive to a proportional income tax system has a negligible effect on wealth inequality in the United States.
Topics: Economic models; Fiscal PolicyIn this paper, we analyze the dynamic behaviour of employment and hours worked per worker in a stochastic general equilibrium model with a matching mechanism between vacancies and unemployed workers. The model is estimated for the United States using the Generalized Methods of Moments (GMM) estimation technique. An increase in government spending raises hours worked [...]
Topics: Fiscal Policy; Labour marketsThe authors construct a simple general equilibrium model of unemployment and calibrate it to the Canadian economy. Job creation and destruction are endogenous. In this model, they consider several potential factors that could contribute to the long-run increase in the Canadian unempoloyment rate: a more generous unemployment insurance system, higher layoff costs, higher discretionary taxes, [...]
Topics: Economic models; Fiscal Policy; Labour markets
