Flexible prices and real bonds
The Model is a heterogeneous agents endowment economy with flexible prices and uninsurable idiosyncratic labor income risk in which markets are incomplete, based on Huggett (1993), where only a real government bond can be traded, subject to exogenously imposed borrowing limits. The economy is cashless as in Woodford (2003). Monetary policy sets the nominal interest rate.Monetary policy rule for nominal interest rate it+1: where ɸ describes the response to deviations of the price level from its steady-state level, P is the price level, Pss is the steady-state price level and r∗ is the steady-state interest rate.
MPCs
Determinacy can be assessed for an economy with a quarterly MPC of 0.12 or 0.24:
Rigid prices and real bonds
The Model is a heterogeneous agents economy with endogenous labor and uninsurable idiosyncratic labor income risk in which markets are incomplete, where only a real government bond can be traded, subject to exogenously imposed borrowing limits. The economy is cashless as in Woodford (2003). Monetary policy sets the nominal interest rate.Prices are rigid. The evolution of inflation is described through the New Keynesian Phillips curve: with slope parameter κ and output is Yt.
Monetary policy rule for nominal interest rate it+1: where ɸ describes the response to deviations of the price level from its steady-state level, P is the price level, Pss is the steady-state price level and r∗ is the steady-state interest rate.
MPCs
Determinacy can be assessed for an economy with a quarterly MPC of 0.12 or 0.24:
Rigid prices, rigid wages and real bonds
The Model is a heterogeneous agents economy with endogenous labor and uninsurable idiosyncratic labor income risk in which markets are incomplete, where only a real government bond can be traded, subject to exogenously imposed borrowing limits. The economy is cashless as in Woodford (2003). Monetary policy sets the nominal interest rate.Prices are rigid. The evolution of inflation is described through the New Keynesian Phillips curve: with slope parameter κ and real wage wt. Output does not enter this equation since output is linear in hours.
Wages are rigid. The evolution of wage inflation is described through the wage Phillips curve: with slope parameter κw and λw, wage inflation πw, wage wt and output Yt. The slope parameter λw = κw/ϵ, where ϵ is the output-elasticity of the (natural) real wage (mrs).
Monetary policy rule for nominal interest rate it+1: where ɸ describes the response to deviations of the price level from its steady-state level, P is the price level, Pss is the steady-state price level and r∗ is the steady-state interest rate.
MPCs
Determinacy can be assessed for an economy with a quarterly MPC of 0.12 or 0.24:
Flexible prices and nominal bonds
The Model is a heterogeneous agents endowment economy with flexible prices and uninsurable idiosyncratic labor income risk in which markets are incomplete, based on Huggett (1993), where only a nominal government bond can be traded, subject to exogenously imposed borrowing limits. The economy is cashless as in Woodford (2003). Monetary policy sets the nominal interest rate and fiscal policy sets taxes and debt.Monetary policy rule for nominal interest rate it+1: where ɸ describes the response to deviations of the price level from its steady-state level, P is the price level, Pss is the steady-state price level and r∗ is the steady-state interest rate.
Fiscal policy rule for nominal debt: where ɸB describes the response to deviations of the price level from its steady-state level, where B is the nominal debt level and Bss is the steady-state debt level.
MPCs
Determinacy can be assessed for an economy with a quarterly MPC of 0.12 or 0.24:
Rigid prices and nominal bonds
The Model is a heterogeneous agents economy with endogenous labor and uninsurable idiosyncratic labor income risk in which markets are incomplete, where only a nominal government bond can be traded, subject to exogenously imposed borrowing limits. The economy is cashless as in Woodford (2003). Monetary policy sets the nominal interest rate and fiscal policy sets taxes and debt.Prices are rigid. The evolution of inflation is described through the New Keynesian Phillips curve: with slope parameter κ and output is Yt.
Monetary policy rule for nominal interest rate it+1: where ɸ describes the response to deviations of the price level from its steady-state level, P is the price level, Pss is the steady-state price level and r∗ is the steady-state interest rate.
Fiscal policy rule for nominal debt: where ɸB describes the response to deviations of the price level from its steady-state level, where B is the nominal debt level and Bss is the steady-state debt level.
MPCs
Determinacy can be assessed for an economy with a quarterly MPC of 0.12 or 0.24:
Rigid prices and nominal bonds
The Model is a heterogeneous agents economy with endogenous labor and uninsurable idiosyncratic labor income risk in which markets are incomplete, where only a nominal government bond can be traded, subject to exogenously imposed borrowing limits. The economy is cashless as in Woodford (2003). Monetary policy sets the nominal interest rate and fiscal policy sets taxes and debt.Prices are rigid. The evolution of inflation is described through the New Keynesian Phillips curve: with slope parameter κ and output is Yt.
Wages are rigid. The evolution of wage inflation is described through the wage Phillips curve: with slope parameter κw and λw, wage inflation πw, wage wt and output Yt. The slope parameter λw = κw/ϵ, where ϵ is the output-elasticity of the (natural) real wage (mrs).
Monetary policy rule for nominal interest rate it+1: where ɸ describes the response to deviations of the price level from its steady-state level, P is the price level, Pss is the steady-state price level and r∗ is the steady-state interest rate.
Fiscal policy rule for nominal debt: where ɸB describes the response to deviations of the price level from its steady-state level, where B is the nominal debt level and Bss is the steady-state debt level.
MPCs
Determinacy can be assessed for an economy with a quarterly MPC of 0.12 or 0.24:
Flexible prices and FTPL tax rule
The Model is a heterogeneous agents endowment economy with flexible prices and unin- surable idiosyncratic labor income risk in which markets are incomplete, based on Huggett (1993), where only a nominal government bond can be traded, subject to exogenously imposed borrowing limits. The economy is cashless as in Woodford (2003). Monetary policy sets the nominal interest rate. Fiscal policy follows a FTPL tax rule.Monetary policy rule for nominal interest rate it+1: where ɸ describes the response to deviations of the price level from its steady-state level, P is the price level, Pss is the steady-state price level and r∗ is the steady-state interest rate.
FTPL tax rule: where τss is steady-state taxes, bt is real bonds, rt is the real interest rate and γ ≥0 describes the tax responses to interest rate payments.
- γ∈(0,1): active fiscal policy (Leeper, 1991)
- γ>1: passive fiscal policy (Leeper, 1991)
MPCs
Determinacy can be assessed for an economy with a quarterly MPC of 0.12 or 0.24:
Rigid prices and FTPL tax rule
The Model is a heterogeneous agents economy with endogenous labor and uninsurable idiosyncratic labor income risk in which markets are incomplete, where only a nominal government bond can be traded, subject to exogenously imposed borrowing limits. The economy is cashless as in Woodford (2003). Monetary policy sets the nominal interest rate.Prices are rigid. The evolution of inflation is described through the New Keynesian Phillips curve: with slope parameter κ and output is Yt.
Monetary policy rule for nominal interest rate it+1: where ɸ describes the response to deviations of the price level from its steady-state level, P is the price level, Pss is the steady-state price level and r∗ is the steady-state interest rate.
FTPL tax rule: where τss is steady-state taxes, bt is real bonds, rt is the real interest rate and γ ≥0 describes the tax responses to interest rate payments.
- γ∈(0,1): active fiscal policy (Leeper, 1991)
- γ>1: passive fiscal policy (Leeper, 1991)
MPCs
Determinacy can be assessed for an economy with a quarterly MPC of 0.12 or 0.24: