Paul McNelis | Fordham University (original) (raw)
Papers by Paul McNelis
Social Science Research Network, 2022
Journal of International Money and Finance, Dec 1, 2016
Oxford University Press eBooks, Feb 5, 2018
This chapter uses an example to demonstrate the steps of specifying, calibrating, solving, and si... more This chapter uses an example to demonstrate the steps of specifying, calibrating, solving, and simulating a macroeconomic model in order to evaluate alternative policies for reducing domestic public debt. It extends the simple closed-economy New Keynesian model by incorporating the zero lower bound and asymmetric wage adjustment (in which wages are much more rigid in the downward direction). We examine the dynamics of adjustment, given a sharp increase in government debt due to a once-only big increase in spending. We find that selective tax-rate rules, incorporating a degree of tax relief in a period of fiscal consolidation, are effective instruments for rapidly reducing the overhang of a large stock of public debt.
RePEc: Research Papers in Economics, 2008
Journal of Economic Dynamics and Control, 2018
This paper examines the effects of adopting unconventional policies in a crisis environment chara... more This paper examines the effects of adopting unconventional policies in a crisis environment characterised by the international transmission of negative financial intermediation and real capital quality shocks. Using a two-country model with financial frictions, we compare adjustment in both countries. We condition one country to adopt a credit easing rule as the monetary regime, regardless of the source of the crisis. We consider results when the other country does nothing, or implements a fiscal (tax-rate) policy rule. Our results show that when both countries experience massive asymmetric shocks, the adoption of optimal policy rules can be used effectively to mitigate negative consequences for both economies. However if the crisis events are due to similar shocks, unconventional monetary policy or fiscal policy can improve conditions in own country, whilst worsening economic conditions in the other country, generating beggar-thy-neighbor growth outcomes.
Economic Modelling, 2016
Empirical studies about whether trade and financial openness lead to favourable Gini outcomes yie... more Empirical studies about whether trade and financial openness lead to favourable Gini outcomes yield mixed results and theoretical work suggest that the effects likely depend on the stage of economic development and the nature of the production structure. This paper proposes a model of a small open economy with two key components – a component with heterogeneous agents earning a range of incomes and a component with traded and non-traded goods and associated financial linkages. Simulations show that both trade and financial openness can lead to improvements in both income growth and equality once an economy crosses a critical threshold in capital intensity and in the use of imported intermediate goods in the production process.
The authors consider various models of daily stock price returns in Australia which include the r... more The authors consider various models of daily stock price returns in Australia which include the responses to shocks in Japanese and US markets. From statistical data analysis they show that the daily returns in the stock index are predictable and in rank orderings the artificial neural network (ANN) model generates in-sample the lowest residual sum of squared errors compared with the autoregressive, the GARCH-M and some other models. They observe that relative to the ANN model the autoregressive model underestimates the effect of the Japanese stock market and overestimates the effect of the US stock market on Australian stock returns.
This paper examines the welfare implications of managing Q with in ‡ation targeting by monetary a... more This paper examines the welfare implications of managing Q with in ‡ation targeting by monetary authorities who have to "learn" the laws of motion for both in ‡ation and the rate of growth of Q. Our results show that the Central Bank can achieve great success in reducing the volatility of GDP growth with basically the same in ‡ation volatility, if it incorporates this additional target into its policy regime. However, the welfare e¤ects are generally lower, in terms of consumption, when the monetary authorithy reacts to Q growth as well as in ‡ation.
ABSTRACT This paper examines the interaction of monetary and …scal policies in open economies sub... more ABSTRACT This paper examines the interaction of monetary and …scal policies in open economies subject to distortionary monopolistic competition. Taxes may be lump sum or levied on labor income or consumption, and house-holds accumulate both foreign assets and domestic government bonds. Under a balanced budget rule with lump-sum taxation, the welfare-improving monetary policy targets ination and output growth and engages in interest-rate smoothing. Under consumption or income taxes, which may vary with productivity, the welfare-improving monetary policy targets ination and output growth but does not engaged in interest-rate smoothing.
This paper examines the interaction of monetary and …scal policies in open economies subject to d... more This paper examines the interaction of monetary and …scal policies in open economies subject to distortionary monopolistic competition. Taxes may be lump sum or levied on labor income or consumption, and households accumulate both foreign assets and domestic government bonds. Under a balanced budget rule with lump-sum taxation, the welfare-improving monetary policy targets in‡ation and output growth and engages in interestrate smoothing. Under consumption or income taxes, which should vary with productivity, the best welfare-improving monetary policy targets in‡ation and output growth but does not engage in interest-rate smoothing.
This paper examines the interaction of fiscal and trade balances in open economices subject to mo... more This paper examines the interaction of fiscal and trade balances in open economices subject to monopolistic competition with sticky pricesetting behavior and distortionary taxes. We find that the elasticity of net exports with respect to the real exchange rate can influence the correlation between the balances. In particular, following a shock to productivity, we find a positive correlation between trade and fiscal balances, when export elasticity is high, but a negative correlation when export elasticity is low.
This paper examines the interaction of fiscal and current account balances in open economies subj... more This paper examines the interaction of fiscal and current account balances in open economies subject to monopolistic competition with sticky price-setting behavior, adjustment costs for investment, and distortionary labor income taxes. We find that the elasticity of exports with respect to the real exchange rate influences the correlation between the balances. In particular, in simulations with recurring shocks to productivity, we find that the balances are positively correlated for a range of export elasticities. However, for simulations with recurring real government expenditure shocks, we find that the balances are positively correlated under high export elasticity but negatively correlated under low export elasticity.
ABSTRACT This paper examines the e¤ects of procyclical government spending on welfare and monetar... more ABSTRACT This paper examines the e¤ects of procyclical government spending on welfare and monetary policy in a small open economic subject to recurring terms of recurring shocks in the export sector and endogenous risk premia on its external debt. Welfare is strongly improved if the government abandons procyclical spending in favor of counter-cyclical spending or external debt targeting. Monetary policy can provice at best a minor …xup for procyclial spending by targeting ination as well as the growht of home output. This …xup comes at a cost of higher real interest volatility.
This paper compares the e¤ects of pro and counter-cyclical government spending on income inequali... more This paper compares the e¤ects of pro and counter-cyclical government spending on income inequality and welfare in a small open economy. We examine the consequences of alternative government spending rules following shocks to productivity, domestic interest rates, terms of trade and export demand. The simulated results show that the type of spending rule makes negligible di¤erence to welfare, in the face of domestic or external shocks. However, pro-cyclical government spending reduces income inequality by more than countercyclical spending behavior across di¤erent shocks and alternative spec-i…cations for domestic production.
Social Science Research Network, 2022
Journal of International Money and Finance, Dec 1, 2016
Oxford University Press eBooks, Feb 5, 2018
This chapter uses an example to demonstrate the steps of specifying, calibrating, solving, and si... more This chapter uses an example to demonstrate the steps of specifying, calibrating, solving, and simulating a macroeconomic model in order to evaluate alternative policies for reducing domestic public debt. It extends the simple closed-economy New Keynesian model by incorporating the zero lower bound and asymmetric wage adjustment (in which wages are much more rigid in the downward direction). We examine the dynamics of adjustment, given a sharp increase in government debt due to a once-only big increase in spending. We find that selective tax-rate rules, incorporating a degree of tax relief in a period of fiscal consolidation, are effective instruments for rapidly reducing the overhang of a large stock of public debt.
RePEc: Research Papers in Economics, 2008
Journal of Economic Dynamics and Control, 2018
This paper examines the effects of adopting unconventional policies in a crisis environment chara... more This paper examines the effects of adopting unconventional policies in a crisis environment characterised by the international transmission of negative financial intermediation and real capital quality shocks. Using a two-country model with financial frictions, we compare adjustment in both countries. We condition one country to adopt a credit easing rule as the monetary regime, regardless of the source of the crisis. We consider results when the other country does nothing, or implements a fiscal (tax-rate) policy rule. Our results show that when both countries experience massive asymmetric shocks, the adoption of optimal policy rules can be used effectively to mitigate negative consequences for both economies. However if the crisis events are due to similar shocks, unconventional monetary policy or fiscal policy can improve conditions in own country, whilst worsening economic conditions in the other country, generating beggar-thy-neighbor growth outcomes.
Economic Modelling, 2016
Empirical studies about whether trade and financial openness lead to favourable Gini outcomes yie... more Empirical studies about whether trade and financial openness lead to favourable Gini outcomes yield mixed results and theoretical work suggest that the effects likely depend on the stage of economic development and the nature of the production structure. This paper proposes a model of a small open economy with two key components – a component with heterogeneous agents earning a range of incomes and a component with traded and non-traded goods and associated financial linkages. Simulations show that both trade and financial openness can lead to improvements in both income growth and equality once an economy crosses a critical threshold in capital intensity and in the use of imported intermediate goods in the production process.
The authors consider various models of daily stock price returns in Australia which include the r... more The authors consider various models of daily stock price returns in Australia which include the responses to shocks in Japanese and US markets. From statistical data analysis they show that the daily returns in the stock index are predictable and in rank orderings the artificial neural network (ANN) model generates in-sample the lowest residual sum of squared errors compared with the autoregressive, the GARCH-M and some other models. They observe that relative to the ANN model the autoregressive model underestimates the effect of the Japanese stock market and overestimates the effect of the US stock market on Australian stock returns.
This paper examines the welfare implications of managing Q with in ‡ation targeting by monetary a... more This paper examines the welfare implications of managing Q with in ‡ation targeting by monetary authorities who have to "learn" the laws of motion for both in ‡ation and the rate of growth of Q. Our results show that the Central Bank can achieve great success in reducing the volatility of GDP growth with basically the same in ‡ation volatility, if it incorporates this additional target into its policy regime. However, the welfare e¤ects are generally lower, in terms of consumption, when the monetary authorithy reacts to Q growth as well as in ‡ation.
ABSTRACT This paper examines the interaction of monetary and …scal policies in open economies sub... more ABSTRACT This paper examines the interaction of monetary and …scal policies in open economies subject to distortionary monopolistic competition. Taxes may be lump sum or levied on labor income or consumption, and house-holds accumulate both foreign assets and domestic government bonds. Under a balanced budget rule with lump-sum taxation, the welfare-improving monetary policy targets ination and output growth and engages in interest-rate smoothing. Under consumption or income taxes, which may vary with productivity, the welfare-improving monetary policy targets ination and output growth but does not engaged in interest-rate smoothing.
This paper examines the interaction of monetary and …scal policies in open economies subject to d... more This paper examines the interaction of monetary and …scal policies in open economies subject to distortionary monopolistic competition. Taxes may be lump sum or levied on labor income or consumption, and households accumulate both foreign assets and domestic government bonds. Under a balanced budget rule with lump-sum taxation, the welfare-improving monetary policy targets in‡ation and output growth and engages in interestrate smoothing. Under consumption or income taxes, which should vary with productivity, the best welfare-improving monetary policy targets in‡ation and output growth but does not engage in interest-rate smoothing.
This paper examines the interaction of fiscal and trade balances in open economices subject to mo... more This paper examines the interaction of fiscal and trade balances in open economices subject to monopolistic competition with sticky pricesetting behavior and distortionary taxes. We find that the elasticity of net exports with respect to the real exchange rate can influence the correlation between the balances. In particular, following a shock to productivity, we find a positive correlation between trade and fiscal balances, when export elasticity is high, but a negative correlation when export elasticity is low.
This paper examines the interaction of fiscal and current account balances in open economies subj... more This paper examines the interaction of fiscal and current account balances in open economies subject to monopolistic competition with sticky price-setting behavior, adjustment costs for investment, and distortionary labor income taxes. We find that the elasticity of exports with respect to the real exchange rate influences the correlation between the balances. In particular, in simulations with recurring shocks to productivity, we find that the balances are positively correlated for a range of export elasticities. However, for simulations with recurring real government expenditure shocks, we find that the balances are positively correlated under high export elasticity but negatively correlated under low export elasticity.
ABSTRACT This paper examines the e¤ects of procyclical government spending on welfare and monetar... more ABSTRACT This paper examines the e¤ects of procyclical government spending on welfare and monetary policy in a small open economic subject to recurring terms of recurring shocks in the export sector and endogenous risk premia on its external debt. Welfare is strongly improved if the government abandons procyclical spending in favor of counter-cyclical spending or external debt targeting. Monetary policy can provice at best a minor …xup for procyclial spending by targeting ination as well as the growht of home output. This …xup comes at a cost of higher real interest volatility.
This paper compares the e¤ects of pro and counter-cyclical government spending on income inequali... more This paper compares the e¤ects of pro and counter-cyclical government spending on income inequality and welfare in a small open economy. We examine the consequences of alternative government spending rules following shocks to productivity, domestic interest rates, terms of trade and export demand. The simulated results show that the type of spending rule makes negligible di¤erence to welfare, in the face of domestic or external shocks. However, pro-cyclical government spending reduces income inequality by more than countercyclical spending behavior across di¤erent shocks and alternative spec-i…cations for domestic production.