TY  - GEN
AB  - The paper examines the role of fiscal and monetary policy on the dynamics of monetary
expansion in a macroeconomy. Its microeconomic structure defined by producers with
neoclassical production functions, heterogeneous OLG consumers, and a stationary fiscal
and monetary policy induces a consistent dynamic closed macroeconomic model of the
AS-AD type. Existence and uniqueness of a temporary competitive monetary equilibrium
are shown in a two-market economy (determining prices, wages, output, and employment)
under a standard set of neoclassical conditions on production, consumer preferences, fiscal
and monetary parameters. Comparative statics on prices, wages, and allocations for all
levels of the state variables: money balances, debt, and expectations are shown.
The dynamic development of temporary equilibria is defined by orbits of a dynamical
system generated by three mappings of the one-step (recursive) time change, one for each
state variable. The paper defines and describes explicitly the forecasting rules for prices
as functions (so-called perfect predictors) which induce perfect foresight along orbits of
the economy. It establishes sufficient conditions for their existence and uniqueness and
provides a constructive characterization of perfect predictors for the AS-AD economy.
Given existence of a globally perfect predictor, perfect foresight holds along all orbits of
the economy. The results show that constant intertemporal allocations are uniquely gener-
ated by orbits of balanced expansion of both money balances and public debt. Generically,
depending on parameters, there exist two or no balanced paths while stationary equilibria
with zero inflation exist only on a small (non-open) set of parameters.
For a benchmark case (defined by isoelastic utility and production functions) perfect
foresight dynamics exist globally and are monotonic (no cycles). There exist at most
two balanced paths one of which is always unstable. Their existence and stability are
influenced in a decisive way by fiscal and monetary parameters determining steady state
inflation rates, allocations, as well as bounds for sustainable debt-to-GDP ratios.
DA  - 2018
KW  - monetary/fiscal policy
KW  - deficit
KW  - monetary growth
KW  - stability
KW  - perfect foresight
LA  - eng
PY  - 2018
SN  - 0931-6558
TI  - The Dynamics of Balanced Expansion in Monetary Economies with Sovereign Debt
UR  - https://nbn-resolving.org/urn:nbn:de:0070-pub-29313278
Y2  - 2024-11-22T05:19:52
ER  -