Essays on monetary and fiscal policy

Pescatori, Andrea

Essays on monetary and fiscal policy

Document Type

Doctoral thesis
Published Version

Author

Pescatori, Andrea

Director

Galí, Jordi

Publication Date

2006-12-18

Citation

Pescatori, A. Essays on monetary and fiscal policy. Universitat Pompeu Fabra; 2006. handle: http://hdl.handle.net/10803/7346

This citation was generated automatically.

Doctoral program

Programa de doctorat en Economia, Finances i Empresa

Abstract

The thesis is divided into three chapters. 1) I study how monetary policy should be optimally designed when households show financial wealth heterogeneity. Main results: thanks to its ability to affect interest payments volatility, monetary policy has real effects even in a flexible-price cashless-limit environment; second, in a setup with nominal rigidities, price stability is no longer optimal. The extent of deviation from price stability depends on the initial level of debt dispersion. 2) I assess the role of housing price movements in influencing the optimal design of monetary policy. Under the optimal simple rule, housing price movements should not be a separate target variable in addition to inflation. Furthermore, the welfare loss arising from targeting housing prices becomes quantitatively more significant the higher the degree of access to the credit market. 3) I analyze the effects of fiscal policy in a currency area. Results: a public spending shock in one region increases private agents demand for imports and appreciates the terms of trade; second, a countercyclical fiscal rule can restore the Taylor principle, the uniqueness of the equilibrium and reduce macro-volatility.

Keywords

limited financial markets participation, rule-of-thumb agents, heterogeneous agents, incomplete markets, borrowing constraints, credit frictions, fiscal policy, optimal monetary policy, monetary policy, housing prices

Subjects

336 - Finance. Banking. Currency. Stock market
338 - Economic situation. Economic policy. Economic management, control, and planning. Production. Services. Tourism. Prices