Seminario "Fiscal Theory of the Price Level in Small and Open Economies"
Miércoles 30/4, 17.15h
Presentado por Javier García-Cicco
Paper abstract
We study the implications of Fiscal Theory of the Price Level (FTPL) considerations for the dynamics of an otherwise standard New Keynesian small open economy. We pay special attention to the role of the currency composition of government debt. First, we analyze the existence and uniqueness of a stationary equilibrium in the context of interest-rate rules, and how it depends on the share of debt denominated in foreign currency. Second, we examine how the monetary transmission mechanism is altered when FTPL is at play. We also consider the role of exchange-rate management. Finally, we study how alternative monetary/fiscal regimes determine the propagation of external shocks, highlighting two novel channels: (i) the induced real-exchange-rate movements alter the value of outstanding debt, depending on its currency composition, with an impact in prices through an FTPL channel, and (ii) relaxing the assumption of lump-sum taxes is relevant, as foreign shocks may influence the expected path of the primary deficit.
Javier García-Cicco
Ph. D. in Economics, Duke University. He is an Associate Professor of Economics at Universidad de San Andrés, Argentina. His main research interests are international macroeconomics, monetary and fiscal policy, and econometrics.
We study the implications of Fiscal Theory of the Price Level (FTPL) considerations for the dynamics of an otherwise standard New Keynesian small open economy. We pay special attention to the role of the currency composition of government debt. First, we analyze the existence and uniqueness of a stationary equilibrium in the context of interest-rate rules, and how it depends on the share of debt denominated in foreign currency. Second, we examine how the monetary transmission mechanism is altered when FTPL is at play. We also consider the role of exchange-rate management. Finally, we study how alternative monetary/fiscal regimes determine the propagation of external shocks, highlighting two novel channels: (i) the induced real-exchange-rate movements alter the value of outstanding debt, depending on its currency composition, with an impact in prices through an FTPL channel, and (ii) relaxing the assumption of lump-sum taxes is relevant, as foreign shocks may influence the expected path of the primary deficit.
Javier García-Cicco
Ph. D. in Economics, Duke University. He is an Associate Professor of Economics at Universidad de San Andrés, Argentina. His main research interests are international macroeconomics, monetary and fiscal policy, and econometrics.