Please note that the seminar titled “US Monetary and Fiscal Policies – Conflict or Cooperation?” scheduled to take place in the ESRI at 4pm on Thursday 19 April has been cancelled. Apologies for any inconvenience caused.
Guest Speaker: Campbell Leith, Professor of Macroeconomics, University of Glasgow
Venue: ESRI, Whitaker Square, Sir John Rogerson’s Quay, Dublin 2.
The speaker will present a paper which evaluates how monetary and fiscal policies in the US have evolved since the 1950s up until the financial crisis.
Abstract provided for the paper: Most of the literature estimating DSGE models for monetary policy analysis ignores fiscal policy and assumes that monetary policy follows a simple rule. In this paper we allow both fiscal and monetary policy to be described by policy rules and/or optimal policy which are subject to switches over time. We find that US monetary and fiscal policy have often been in conflict, and that the US hasn’t convincingly achieved the conventional policy combination of a conservative monetary policy paired with a debt stabilizing fiscal policy. In a series of counterfactuals, we re-examine three broad trends in macroeconomic policy outcomes – the fall in the debt to GDP ratio and rise in inflation prior to the 1980s, the subsequent disinflation and rising debt to GDP ratio during the 1980s, and the stabilisation of the debt to GDP ratio from the mid-1990s until the financial crisis. We show how these trends are driven by shifts in monetary and fiscal policy, and explore how these trends and the underpinning fiscal financing mix would have differed under alternative policy configurations. Finally, we explore the welfare implications of alternative policies and find that a conservative central bank following a time-consistent fiscal policy leader would come close to mimicking the cooperative Ramsey policy, but only if the regime is credible.
Campbell Leith co-authored the paper with Xiaoshan Chen, University of Durham, and Eric M. Leeper, Indiana University and NBER.
Campbell Leith is Professor of Macroeconomics at the University of Glasgow, joining in 1999. He previously held research positions at the Universities of Exeter and Strathclyde. His research interests are in mainstream macroeconomics, with particular emphasis on monetary and fiscal policy issues. He has been appointed to Scotland’s fiscal council, the Scottish Fiscal Commission. He is an Associated Editor of the European Economic Review while he has held various editorial positions and has served on the last two RAE panels, the ESRC’s Grant Assessment Panel, and the Leverhulme Prize in Economics. His research has been published in leading peer-reviewed international journals such as Handbook of Macroeconomics, Economic Journal, Journal of Monetary Economics, Review of Economics and Statistics, Journal of Economic Theory, European Economic Review, Journal of Economics Dynamics and Control.
About the ESRI Seminar Series
The ESRI organises a public seminar series, inviting researchers from both the ESRI and other institutions to present new research on a variety of public policy issues. The seminar series provides access to specialised knowledge and new research methodologies, with the objective of promoting research excellence and facilitating productive dialogue across the policy and research fields.