Monetary and Fiscal Policy Interactions with Bounded Rationality / Precautionary Savings and Hysteresis

"Monetary and Fiscal Policy Interactions with Bounded Rationality"

Author: Marialaura Seccareccia

Abstract

This paper proposes a theory of fiscal and monetary policy interactions with bounded rationality in a low interest rate environment. The absence of rational expectations breaks Ricardian equivalence and as a consequence both policies jointly determine output and inflation. The extent of the interactions is shown to depend on the level of public debt, the degree of foresight of households and the credit worthiness of government bonds.

"Precautionary Savings and Hysteresis" 

Author: Marco D'Amico

Abstract

I study precautionary savings and hysteresis in a medium-term cycle model with heterogeneous-agents and endogenous-growth (HAEG). Countercyclical variations in asset accumulation are an important amplification mechanism for fluctuations at both the high and medium frequency. Following a rise in the job-separation rate, hysteresis is almost three times larger in the HAEG model than it is in its representative-agent counterpart.