Liquidity Constraint, Sticky Prices and Fiscal and Monetary Policy Interaction
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| Title | Liquidity Constraint, Sticky Prices and Fiscal and Monetary Policy Interaction
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| Author | Zhou Bo and Hou Shuaiqi |
| Organization | Dongbei University of Finance and Economics |
| Email | yourab@163.com |
| Key Words | Fiscal and Monetary Policy Interaction；Sticky Prices； Liquidity Constraint；Distorted Tax |
| Abstract | Actual economic structure is vital for studying fiscal and monetary policy interaction. This paper constructs New Keynesian dynamic stochastic general equilibrium model to characterize such non Ricardian as liquidity constraint consumers，sticky prices and distorted tax. Empirical estimates based on quarterly data of China find that ROT consumers is 25% and can explain 22% total employment, each period 80% firms adjust prices and 19% will index inflation price. Investigating fiscal and monetary policy interaction in logarithm linear NK-DSGE can find that empirically estimated fiscal policy rules in automatic stabilizer improve economic performances, government spending rule is more effective than tax rule and payroll taxes is relative importance relative to personal taxes in stabilizing output and inflation. The channels are following: resource withdrawal effect，control income effect on ROT consumer via net personal taxe, real wages effect via payroll tax wedge will interact with nonlinear monetary rule. |
| Serial Number | WP955 |
| Time | 2015-11-06 |
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