Essays on unconventional macroeconomic policy
This dissertation investigates various unconventional macroeconomic policy options. Specifically, I look at solutions to the problem of ineffective monetary policy during secular stagnation.
In Chapter 2, we study the effect of a permanent increase in public debt in such an economy. Most importantly, we find that there is a clear constraint to this fiscal policy option, because there exists a maximum public debt to GDP ratio beyond which no equilibrium on the private loan market exists.
In chapter 3, we use a similar overlapping generations model to investigate the use of rule-based fiscal policy during secular stagnation. Here, we find that a fiscal policy rule is able to stabilise the economy justas well as a conventional Taylor rule on nominal rates. However, in the secular stagnationequilibrium no active stabilisation policy is necessary as downward nominal wage rigidity provides an automatic stabilizing effect.
In chapter 4, I move away from the issue of secular stagnation and focus on pro-cyclical monetary policy. Within the standard New Keynesian model, I show that a pro-cyclical monetary policy specification also ensures determinacy. There is therefore no reason why pro-cyclical monetary policy should be dismissed a priori within the New Keynesian framework.