In this seminar David Vines will provide an overview of his recent paper, ‘Optimal Monetary and Fiscal Policy in an Economy with Endogenous Public Debt’. This paper uses a New Keynesian framework to study the coordination of fiscal and monetary policies, in response to an inflation shock when the policymaker acts with commitment. The author first shows that, in the simplest New Keynesian model, fiscal policy plays no part in the optimal policy response, because of the comparative advantage which monetary policy has in the control of inflation. The author then adds endogenous public debt and shows that the above result is no longer true. When the initial stock of debt is low, it is optimal for government spending to remain largely inactive, but when the initial stock of debt is high, government spending should play a significant stabilisation role in the first period. This finding is robust to adding endogenous capital accumulation and inflation persistence in the Phillips curve.

David Vines is a Professor of Economics, and a Fellow of Balliol College, at Oxford University, where he is also Acting Director of the Political Economy of Financial Markets Programme at St Anthony’s College and Director of the Ethics and Economics Programme at the Institute for New Economic Thinking in the Oxford Martin School. In addition he is a Research Fellow of the Centre for Economic Policy Research in London and CAMA Director in the Globalisation and Trade program.

David’s research is on macroeconomics, finance, and global economic governance; he has published many papers and books on these subjects. His initial work was with the Nobel-Prize winner James Meade in Cambridge; together they published some of the earliest research on inflation-targeting regimes. He is currently working on the restoration of trust in the financial system, on the future of the European Monetary Union, and on the role of the International Monetary Fund in ensuring international macroeconomic cooperation. He teaches macroeconomics, international economics and development economics to both graduate students and undergraduates at Oxford University.

Last year David published Capital Failure: Restoring Trust in Financial Services (OUP, 2014), which he edited with Nick Morris. Peter Temin and he have recently written The Leaderless Economy (Princeton University Press, 2013) and Keynes: Useful Economics for the World Economy (MIT Press, 2014).

The CAMA Macroeconomics Brown Bag Seminars offer CAMA speakers, in particular PhD students, an opportunity to present their work in progress in front of their peers, and reputable visitors to showcase their work.