Fiscal stimulus in a monetary union
-
Upload
aurelien-poissonnier -
Category
Economy & Finance
-
view
13 -
download
2
Transcript of Fiscal stimulus in a monetary union
E�ciency of �scal packages in a monetary union
Olfa Alouini & Aurélien Poissonnier
OFCE-Humbolt Universität & Crest-Insee
November 2010
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Introduction
Plan
1 Introduction
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Introduction
Purpose
Built a monetary union model, as simple as possible.Investigate the cross border e�ects of re�ation policies in this framework.Can a country free ride on the others' policy ?Does this free riding opportunity depends on the country size, openness,nominal rigidity ?Is "internal devaluation" an e�cient and non-cooperative strategy ?
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Introduction
Modeling choices
- general equilibrium model
- only 2 countries
- no capital (to simplify)
- localized labor force
- nominal rigidities to make room for monetary policy (EMU)
- explicit government spending and public debt
∵ microfondation of government spending decision
∵ feedback between public debt and government spending decision
∵ taxes on production and consumption to diversify public intervention
channels
Related literature
Andres, Ortega, Valles, JEDC 2008Gali, Monacelli, JIE 2008Benigno, JIE 2004Corsetti, Meier, Muller, IJCB 2010
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Introduction
Modeling choices
- general equilibrium model
- only 2 countries
- no capital (to simplify)
- localized labor force
- nominal rigidities to make room for monetary policy (EMU)
- explicit government spending and public debt
∵ microfondation of government spending decision
∵ feedback between public debt and government spending decision
∵ taxes on production and consumption to diversify public intervention
channels
Related literature
Andres, Ortega, Valles, JEDC 2008Gali, Monacelli, JIE 2008Benigno, JIE 2004Corsetti, Meier, Muller, IJCB 2010
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Introduction
Modeling choices
- general equilibrium model
- only 2 countries
- no capital (to simplify)
- localized labor force
- nominal rigidities to make room for monetary policy (EMU)
- explicit government spending and public debt
∵ microfondation of government spending decision
∵ feedback between public debt and government spending decision
∵ taxes on production and consumption to diversify public intervention
channels
Related literature
Andres, Ortega, Valles, JEDC 2008Gali, Monacelli, JIE 2008Benigno, JIE 2004Corsetti, Meier, Muller, IJCB 2010
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Introduction
Modeling choices
- general equilibrium model
- only 2 countries
- no capital (to simplify)
- localized labor force
- nominal rigidities to make room for monetary policy (EMU)
- explicit government spending and public debt
∵ microfondation of government spending decision
∵ feedback between public debt and government spending decision
∵ taxes on production and consumption to diversify public intervention
channels
Related literature
Andres, Ortega, Valles, JEDC 2008Gali, Monacelli, JIE 2008Benigno, JIE 2004Corsetti, Meier, Muller, IJCB 2010
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Introduction
Modeling choices
- general equilibrium model
- only 2 countries
- no capital (to simplify)
- localized labor force
- nominal rigidities to make room for monetary policy (EMU)
- explicit government spending and public debt
∵ microfondation of government spending decision
∵ feedback between public debt and government spending decision
∵ taxes on production and consumption to diversify public intervention
channels
Related literature
Andres, Ortega, Valles, JEDC 2008Gali, Monacelli, JIE 2008Benigno, JIE 2004Corsetti, Meier, Muller, IJCB 2010
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Introduction
Modeling choices
- general equilibrium model
- only 2 countries
- no capital (to simplify)
- localized labor force
- nominal rigidities to make room for monetary policy (EMU)
- explicit government spending and public debt
∵ microfondation of government spending decision
∵ feedback between public debt and government spending decision
∵ taxes on production and consumption to diversify public intervention
channels
Related literature
Andres, Ortega, Valles, JEDC 2008Gali, Monacelli, JIE 2008Benigno, JIE 2004Corsetti, Meier, Muller, IJCB 2010
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Introduction
Modeling choices
- general equilibrium model
- only 2 countries
- no capital (to simplify)
- localized labor force
- nominal rigidities to make room for monetary policy (EMU)
- explicit government spending and public debt
∵ microfondation of government spending decision
∵ feedback between public debt and government spending decision
∵ taxes on production and consumption to diversify public intervention
channels
Related literature
Andres, Ortega, Valles, JEDC 2008Gali, Monacelli, JIE 2008Benigno, JIE 2004Corsetti, Meier, Muller, IJCB 2010
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Introduction
Modeling choices
- general equilibrium model
- only 2 countries
- no capital (to simplify)
- localized labor force
- nominal rigidities to make room for monetary policy (EMU)
- explicit government spending and public debt
∵ microfondation of government spending decision
∵ feedback between public debt and government spending decision
∵ taxes on production and consumption to diversify public intervention
channels
Related literature
Andres, Ortega, Valles, JEDC 2008Gali, Monacelli, JIE 2008Benigno, JIE 2004Corsetti, Meier, Muller, IJCB 2010
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Introduction
Modeling choices
- general equilibrium model
- only 2 countries
- no capital (to simplify)
- localized labor force
- nominal rigidities to make room for monetary policy (EMU)
- explicit government spending and public debt
∵ microfondation of government spending decision
∵ feedback between public debt and government spending decision
∵ taxes on production and consumption to diversify public intervention
channels
Related literature
Andres, Ortega, Valles, JEDC 2008Gali, Monacelli, JIE 2008Benigno, JIE 2004Corsetti, Meier, Muller, IJCB 2010
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Introduction
Modeling choices
- general equilibrium model
- only 2 countries
- no capital (to simplify)
- localized labor force
- nominal rigidities to make room for monetary policy (EMU)
- explicit government spending and public debt
∵ microfondation of government spending decision
∵ feedback between public debt and government spending decision
∵ taxes on production and consumption to diversify public intervention
channels
Related literature
Andres, Ortega, Valles, JEDC 2008Gali, Monacelli, JIE 2008Benigno, JIE 2004Corsetti, Meier, Muller, IJCB 2010
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model
Plan
2 ModelGoods aggregationHouseholdsFirmsMonetary Authority (closing the model)Government spending and debts-assetsThe augmented version of the model
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model Goods aggregation
Bundles produced in each country
n �rms in country 1 and 1− n �rms in country 2, produce di�erentiatedgoods in their country.The goods are locally aggregated (Dixit-Stiglitz)
Y 1t = K1
(1
n
∫ n
0y1(ε, t)
θ1−1
θ1 dε
) θ1θ1−1
Y 2t = K2
(1
1− n
∫ 1
n
y2(ε, t)θ2−1
θ2 dε
) θ2θ2−1
skip
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model Goods aggregation
Prices of production
The corresponding prices are
P1t =
1
K1
(1
nθ1
∫ n
0P1(ε, t)1−θ1dε
) 11−θ1
P2t =
1
K2
(1
(1− n)θ2
∫ 1
n
P2(ε, t)1−θ2dε
) 11−θ2
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model Goods aggregation
Speci�c demand for each product in a bundle
Each �rm will face a speci�c demand for its production (either locallyconsumed or exported)
y1(ε, t) =K1θ1−1
nθ1
(P1(ε, t)
P1t
)−θ1Y 1t
y2(ε, t) =K2θ2−1
(1− n)θ2
(P2(ε, t)
P2t
)−θ2Y 2t
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model Goods aggregation
Consumption Bundle
In each country, the consumption bundle consists in a mix of bothproductions local and imported.
C it =
C ii ,t
1−αiC ij ,tαi
(1− αi )1−αiααiiCPI it = P i
t
1−αiPjt
αi
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model Goods aggregation
Private demand for each product in each country
C 12,t = α1
(P1t
P2t
)1−α1
C 1t
C 11,t = (1− α1)
(P2t
P1t
)α1
C 1t
C 21,t = α2
(P2t
P1t
)1−α2
C 2t
C 22,t = (1− α2)
(P1t
P2t
)α2
C 2t
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model Households
Households' maximization program
maxC i (τ,t),Ai (τ,t),Li (τ,t)
E0
∞∑0
βt(log(C i (τ, t))− κLi (τ, t) + µlog(G i
t ))
subject to their budget constraint
Ai (τ, t) =(1 + rt−1 − ψ(ait−1))Ai (τ, t − 1) + w i (τ, t)Li (τ, t)
−CPI it (1 + νc,it )C i (τ, t) + B i (τ, t)
with ait−1 =Ait−1
P it−1Y
i
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model Households
Consumption dynamic-Euler equation
Et
β C it
C it+1
1 + rt − ψ(ait)
Πc,it+1
1+νc,it+1t
1+νc,it
= 1
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model Households
Labor supply-Wage Phillips curve
We suppose a Dixit-Stiglitz aggregation of di�erentiated labor supplies anda Calvo process on wage setting.Households focus on the purchasing power of their net revenu :
PPNR = w it
CPI it (1+νc,it )
The wages Phillips curve reads
ˆPPNRi
t − ˆPPNRi
t−1 + Πc,it +
νc,i
1 + νc,i(νc,it − ν
c,it−1) =
β
(ˆPPNRt+1 − ˆPPNRt +
νc,i
1 + νc,i
(νc,it+1 − ν
c,it
)+ Πc,i
t+1
)+
(1− βξiw )(1− ξiw )
ξiw
(C it − ˆPPNRt
)
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model Firms
Firms' production function
y i (ε, t) = ζ it(Lit(ε)
)with costs w i
t (1 + νw ,it )Lit(ε)
where ζ i is the total factor productivity in country iPrice setting, Calvo + Dixit-Stiglitz = Phillips curve
Πit =βΠi
t+1 +(1− βξi )(1− ξi )
ξi[ˆPPNR
i
t + ˆRPCi
t +νw ,i
1 + νw ,iνw ,it +
νc,i
1 + νc,iνc,it − ζ it
]
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model Monetary Authority (closing the model)
Central Banker = Taylor Rule for the whole union
Rt = Rρt−1(R∗Πrπ
t Yryt
)1−ρ
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model Government spending and debts-assets
The Governments try to maximize the utility of their citizen households butare blind to their budget constraint (i.e. to their marginal utility)
maxG it
E0
∞∑0
βt log(G it )
subject to public budget constraint
PAit =
(1 + rt−1 − ψ(pait−1)
)PAi
t−1 + νw ,it w itL
it + νc,it CPI itC
it − P i
tGit
pait−1 =PAi
t−1P it−1Y
i
=⇒ The government spending decision is not that of a central planner.
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model Government spending and debts-assets
Public expenditure decision
βG it
G it+1
1 + rt − ψ( PAit
P it Y
i )−PAi
t
P it Y
i ψ′( PAi
t
P it Y
i )
Πit+1
= 1 (1)
Tax rates on consumption and wages are a priori constant and exogenous.
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model Government spending and debts-assets
Asset dynamic
Public assets
PAit =
(1 + rt−1 − ψ(pait−1)
)PAi
t−1 + νw ,it w itL
it + νc,it CPI itC
it − P i
tGit
Private assets
Ai (t) = (1 + rt−1 − ψ(ait−1))Ai (t − 1) + w itL
it − CPI it (1 + ν i ,ct )C i (t) + B i (t)
NB : a spread is paid on the asset which depends on the aggregate asset ofthe country. If it is debt, the agent pays a spread to the �nancialintermediary, if it is savings, the �nancial intermediary will keep a spreadfrom the monetary policy rate.
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model Government spending and debts-assets
Microfondation
Union wide �nancial market of both private and public asset/debtOn this market, �nancial intermediaries borrow, from the central bank tolend to households or governments (and vice versa)The cash needs, turnover, costs and pro�ts of �nancial intermediaries are
Cash needs = CNt = −(A1t + A2
t + PA1t + PA2
t )
Turnover =− (rt − ψ(a1t ))A1(t)− (rt − ψ(a2t ))A2(t)
− (rt − ψ(pa1t ))PA1t − (rt − ψ(pa2t ))PA2
t
Costs = rtCNt + Ξ(A1t , A
2t , PA
1t , PA
2t )
Pro�ts =ψ(a1t )A1(t) + ψ(a2t )A2(t) + ψ(pa1t )PA1t + ψ(pa2t )PA2
t
−Ξ(A1t , A
2t , PA
1t , PA
2t )
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model Government spending and debts-assets
To ensure the uniqueness of the steady state, we suppose that �nancialintermediaries clear their position vis à vis the central bank so that theircash needs are
CNt = −(A1t + A2
t + PD1t + PD2
t ) = 0
assumption 1 : quadratic costs of debt/asset managementassumption 2 : perfect competition⇒ The �nancial market is orthogonal to the rest of the model.
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model The augmented version of the model
The augmented version of the model
utility in consumption and public expenditure CES (not log)
Frisch elasticity 6=∞external habit formation on consumption and labour
internal habit formation on government spending
non constant return to scale production function
partial indexation of production prices on past in�ation
partial indexation of wages on past in�ation of consumption
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Model The augmented version of the model
Calibrations
Classical calibration values table
Spread elasticity with respect to the level of debt
European data of public debt and government bonds interest rate.Using Germany as a reference, we �nd that 1% increase in the public debtgenerates a 5 basis point spread on the corresponding government bond(in quaterly terms).
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Simulation strategy
Plan
3 Simulation strategy
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Simulation strategy
What can the government do to stimulate the economy ?
- a positive shock on G i
- negative shock on νc,i
- negative shock on νw ,i
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Simulation strategy
Comparing �scal stimuli
For the �scal stimulus to be comparable, we state that the increase inpublic expenditures or the decreases in tax revenue are equal 3% of thecountry's GDP.
Public expenditures (four quarters) extra G i = 3%G i
Y i
= 10%
VAT cut (four quarters) ∆νc,i = −3%C i
Y i
≈ −2.8pt
Payroll tax cut (four quarters) ∆νw ,i = − 3%
(1+νc,i ) Ci
Y i
≈ −2.4pt
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Simulation strategy
We can assess the following questions
Which �scal stimulus is the most e�cient (in terms of national GDP) ?
How can �scal policy interact with monetary policy ?
What are the cross border externalities of the �scal packages and howmuch do they depend on asymetries ?
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Best �scal stimulus
Plan
4 Best �scal stimulus
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Best �scal stimulus
Figure: Simulated output 1 following di�erent �scal shocks in country 1
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Best �scal stimulus
Which �scal stimulus is the most e�cient ?
By increasing its demand, the government has a direct e�ect on output.By decreasing tax levels, the gov. generates disin�ation which in turnmodi�es the consumption leisure trade-o�.With usual value of the intertemporal elasticity of substitution our result isdi�erent from Mountford and Uhlig (JAE 2008) on US data=⇒ the most e�cient policy is to increase public spendings
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Interaction with the central banker
Plan
5 Interaction with the central banker
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Interaction with the central banker
Figure: Simulated interest rate following di�erent �scal shocks in country 1
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Interaction with the central banker
How the government interacts with the central banker ?
Gov. Spendings : the government helps the central banker (in�ation)
Tax cuts : the gov. generates disin�ation which forces the centralbanker to decrease its interest rate (especially if the central bankerreact to in�ation of consumption tax included)
In this context the risk for the central banker is to be constrained by thezero lower bound when the government uses tax cuts.
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Fiscal spillovers
Plan
6 Fiscal spilloversIdentifying the spilloversHow these spillovers depend on di�erences between countries ?
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Fiscal spillovers
Union disymetries
Benchmark : same size, Calvo parameter 0.75
France and Netherlands : relative size 3.5, corresponding opennessdegrees 0.2 and 0.7
+ Asymetric nominal rigidities : Calvo parameter 0.63 or 0.83
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Fiscal spillovers Identifying the spillovers
Figure: Simulated output 2 following di�erent �scal shocks in country 1
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Fiscal spillovers Identifying the spillovers
What are the spillover e�ects ?
1 Gov Spendings : the government does not foster imports directly butthrough crowding out e�ect
2 VAT cut : reduces the price of imports directly + pulls real interestrate down for partner country
3 Payroll tax cut : triggers competition in prices across countries + pullsreal interest rate down
Positive spillovers
In the 3 cases �scal packages have a positive impact on the partner country.Strongest impact with VAT cut.
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Fiscal spilloversHow these spillovers depend on di�erences between
countries ?
How these spillovers depend on di�erences between countries ?
We focus on a monetary union between a large country less �exible, andless open with a small, more open and �exible country.The large country tries to stimulate its production.
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Fiscal spilloversHow these spillovers depend on di�erences between
countries ?
Figure: Simulated output 1 following di�erent �scal shocks in country 1
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Fiscal spilloversHow these spillovers depend on di�erences between
countries ?
Figure: Simulated output 2 following di�erent �scal shocks in country 1
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Fiscal spilloversHow these spillovers depend on di�erences between
countries ?
Figure: Simulated interest rate following di�erent �scal shocks in country 1Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Fiscal spilloversHow these spillovers depend on di�erences between
countries ?
How these spillovers depend on country size ?
Spillover e�ects are larger in this disymetric case ( +0.5 points of GDP withtax cuts) since the small country exports a larger share of its production.Also the large country has a stronger in�uence on unionwide in�ation,hence on the central banker.
How these spillovers depend on nominal �exibility ?
1 Being �exible is an advantage for the small country to compete inprices after tax cuts.
2 Yet, when the large country increases public spending, the smallcountry adjust more through prices and less through quantities.
3 The large country being less �exible, generates (twice) less disin�ationhence puts less pressure on the central banker
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Fiscal spilloversHow these spillovers depend on di�erences between
countries ?
How these spillovers depend on country size ?
Spillover e�ects are larger in this disymetric case ( +0.5 points of GDP withtax cuts) since the small country exports a larger share of its production.Also the large country has a stronger in�uence on unionwide in�ation,hence on the central banker.
How these spillovers depend on nominal �exibility ?
1 Being �exible is an advantage for the small country to compete inprices after tax cuts.
2 Yet, when the large country increases public spending, the smallcountry adjust more through prices and less through quantities.
3 The large country being less �exible, generates (twice) less disin�ationhence puts less pressure on the central banker
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Internal devaluation
Plan
7 Internal devaluation
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Internal devaluation
Figure: Simulated output following internal devaluation in country 1 and 2
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Internal devaluation
Figure: Simulated public debt following internal devalution in country 1 and 2
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Internal devaluation
Figure: Simulated public debt following internal devalution in country 1 and 2
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Internal devaluation
Is internal devaluation unfair ?
Internal devaluation succeeds in controlling public de�citLagged e�ect on output and low e�ciency in home countrySmall positive (lagged) e�ect on the partner country's outputSmall negative externality on foreign public debt.In the short run, internal devaluation is not an evil policy for a monetaryunion and is NOT EFFICIENT.
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Internal devaluation
Thank you for your attention.
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Other papers investigate the same questions. They usually rely on budgetrules to model the government.We compare our model to Corsetti, Meier, Muller (2010 IJCB).The di�erence relies mainly on the reaction of the government to shocks ofmonetary policy : In our model, higher interest rates tamper thegovernment's emission of debt.In CMM, the pro or contra cyclical government rule does not have a sizableimpact on the government decision.
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Figure: Comparison of our government with a budget rule : government spending
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Figure: Comparison of our government with a budget rule : public asset
back Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union
Parameter Description Value Alternativeα Production technology parameter 0.7 -β Discount factor 0.9 -h Habit formation 0.7 -σc Inverse of intertemporal elasticity 2 0.5
of substitution of private consumptionσl , Inverse of the Frisch elasticity 2 -α1, α2 Import share 0.45 0.7, 0.2ξ1 Calvo parameter on prices and wages adjustment 0.75 0.83/0.66γ1, γ2 Price and wage indexation on past in�ation 0.2θ1, θ2 Elast. of sub. of domestic products and labour 6 -
products yielding a markup of 20% on prices and wagesνc,1, νc,2 Tax level on consumption 20% -νw,1, νw,1 Tax level on wages 19% -rπ Central Bank reaction to in�ation 1.7 -ρ Taylor rule smoothing parameter 0.8 -ry Central Bank reaction to output gap 0.25 -θ Economic size ratio Y 1/Y 2 1 3.5C/Y , Relative shares of private consumption in GDP 0.7 -ψ Financial premium on debt 0.05 -
Table: Parameters Calibration
back
Olfa Alouini & Aurélien Poissonnier E�ciency of �scal packages in a monetary union