[Paper Review] Estudo sobre o estágio de vantagem competitiva no setor imobiliário : o caso da Incorporadora Penta

Jean‐Bernard Chatelain, Kirsten Ralf|Americanae (AECID Library)|Nov 27, 2012

Economic theories and models6 references7 citations

TL;DR

This paper demonstrates that in a frictionless endowment economy, Ramsey optimal policy yields a unique equilibrium with an interest rate peg and passive fiscal policy, resolving the indeterminacy of Leeper's (1991) two-equilibrium framework under ad-hoc rules. By minimizing a quadratic loss function under quasi-commitment, the optimal policy ensures price stability and debt sustainability through interest rate smoothing and tax smoothing.

ABSTRACT

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Motivation & Objective

• To resolve the indeterminacy in monetary-fiscal policy interactions under ad-hoc feedback rules in a frictionless endowment economy.
• To analyze how Ramsey optimal policy under quasi-commitment eliminates multiple equilibria identified by Leeper (1991).
• To derive the optimal monetary and fiscal policy rules that minimize a loss function incorporating inflation and debt volatility.
• To show that Ramsey policy leads to a unique equilibrium with an interest rate peg and passive fiscal policy, distinct from Leeper’s two equilibria.
• To establish conditions under which the policy maker’s loss function eliminates indeterminacy in initial inflation, depending on the weight on inflation volatility.

Proposed method

• Formulates a representative consumer economy with constant endowment, exogenous government spending, and a Fisher relation linking real interest rate to discount factor.
• Derives linearized dynamics for inflation and real government debt around the steady state using log-linearization techniques.
• Imposes a quadratic loss function over inflation and debt deviations, incorporating smoothing costs for interest rates and lump-sum taxes.
• Applies quasi-commitment to solve the Ramsey optimal policy problem, using a Hamiltonian system and Riccati equation to determine optimal policy rules.
• Solves for the optimal policy parameters using a scalar algebraic Riccati equation, deriving the optimal debt persistence and policy instrument responses.
• Uses SCILAB code (provided by authors) to numerically solve for optimal policy under given parameter values.

Experimental results

Research questions

• RQ1 Can Ramsey optimal policy eliminate the multiple equilibria arising from ad-hoc monetary and fiscal rules in a frictionless endowment economy?
• RQ2 What is the structure of the unique equilibrium under Ramsey optimal policy with quasi-commitment?
• RQ3 How does the inclusion of a non-zero weight on inflation volatility in the loss function affect the indeterminacy of initial inflation?
• RQ4 What is the optimal response of the interest rate and fiscal policy to deviations in debt and inflation under Ramsey optimization?
• RQ5 How do smoothing costs for monetary and fiscal instruments influence the optimal policy rule and debt dynamics?

Key findings

• Ramsey optimal policy results in a unique equilibrium with an interest rate peg and passive fiscal policy, distinct from Leeper’s two equilibria.
• The optimal policy rule features a zero Taylor rule parameter (F* = 0), implying no response of the interest rate to inflation, consistent with an interest rate peg.
• The optimal public debt persistence (autocorrelation) is given by the stable root of the characteristic polynomial: λ_b* = ½(S − √(S² − 4/(βq))), where S = 1 + 1/(βq) + βq(Q_b/μ_s).
• When the cost of changing fiscal policy (μ_s) approaches zero, optimal debt persistence λ_b* approaches 0; when μ_s → ∞, λ_b* → 1.
• The optimal loss function is minimized at zero inflation volatility when Q_π > 0, eliminating indeterminacy in initial inflation; when Q_π = 0, indeterminacy persists but has no effect on the loss function.
• The optimal expected loss is −½(Q_b / (1 − λ_b*)) × (b₀ − b*)², showing that the cost of debt deviation is scaled by the inverse of the debt persistence adjustment factor.