Financial repression in general equilibrium: The case of the United States, 1948–1974

Fri, 01 Mar 2024 00:00:00 +0000

Abstract

Financial repression lowers the return on government debt and contributes, all else equal, towards its liquidation. However, its full effect on the debt-to-GDP ratio hinges on how repression impacts the economy at large because it alters investment and saving decisions. We develop and estimate a New Keynesian model with financial repression. Based on U.S. data for the period 1948–1974, we find, consistent with earlier work, that repression was pervasive but gradually phased out. A model-based counterfactual shows that GDP would have been 5 percent lower, and the debt-to-GDP ratio 20 percentage points higher, had repression not been phased out.

Toward a Taylor rule for fiscal policy

Tue, 01 Apr 2014 00:00:00 +0000

Abstract

In DSGE models, fiscal policy is typically described by simple rules in which tax rates respond to the level of output. We show that there is only weak empirical evidence in favor of such specifications in US data. Instead, the cyclical movements of labor and capital income tax rates are better described by a contemporaneous response to hours worked and investment, respectively. We show that conditioning on these variables is also desirable from a normative perspective as it significantly improves welfare relative to output-based rules.

DSGE on Alexander Kriwoluzky

Financial repression in general equilibrium: The case of the United States, 1948–1974

Abstract

Toward a Taylor rule for fiscal policy

Abstract