Davide Debortoli

Due to time-inconsistency or political turnover, policymakers' promises are not always fulfilled. We analyze an optimal fiscal policy problem where the plans made by the benevolent government are periodically revised. In this loose commitment setting, the properties of labor and capital income taxes are significantly different than under the full-commitment and no-commitment assumptions. Because of the occasional reoptimizations, the average capital income tax is positive even in the long-run. Also, the autocorrelation of taxes is lower, their volatility with respect to output increases and the correlation between capital income taxes and output changes sign. Our method can be used to analyze the plausibility and the importance of commitment in a wide-class of dynamic problems.  

We analyze how public debt evolves when successive policymakers have different policy goals and cannot make credible commitments about their future policies. We consider several cases to be able to disentangle and quantify the respective effects of imperfect commitment and political disagreement. Absent political turnover, imperfect commitment drives the long-run level of debt to zero. With political disagreement, debt is a sizeable fraction of GDP and increasing in the degree of polarization among parties, no matter the degree of commitment. The frequency of political turnover does not produce quantitatively relevant effects. These results are consistent with much of the existing empirical evidence. Finally, we find that in the presence of political disagreement the welfare gains of building commitment are lower.

Monetary policy objectives and targets are not necessarily stable over time. We analyze the optimal response of central banks to such objective instability and the resulting macroeconomic consequences. The possibility to adopt more "liberal" objectives in the future increases current inflation through an accommodation effect. Simultaneously, the central bank tries to anchor inflation by promising to be even more "conservative". The immediate effect is an output contraction, the opposite of what the pressures to adopt more "liberal" objectives may be aiming for. We also analyze the importance of commitment in the presence of unstable objectives and discuss the case where objectives may become more "conservative" in the future, which may be the relevant case for countries considering the adoption of inflation targeting.

We prove the generality of the methodology proposed in \cite{BenignoWoodford2006}. We show that, even in the presence of a distorted steady state, it is always possible and relatively simple to obtain a purely quadratic approximation to the welfare measure. We also show that, in order to do so, the timeless perspective assumption is crucial. 

This paper studies the determinants of the differences in pricing behaviour across sectors and analyzes its consequences for the effects of monetary policy shocks. We build a two-sectors model allowing for several sources of heterogeneity among sectors, like price elasticity of demand, menu costs and sectoral shocks. We find that more competitive sectors change prices more frequently. Moreover, in our two-sectors model, aggregate monetary policy shocks have more persistent aggregate effects than in the one-sector case. Persistency is even higher at a sectoral level and there are important differences in the sectoral responses.