|
|
|
|
||||
|
||||
Optimal Fiscal and Monetary Policy Under Imperfect CompetitionMartin UribeColumbia University - Graduate School of Arts and Sciences - Department of Economics; National Bureau of Economic Research (NBER) Stephanie Schmitt-GroheDuke University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER) January 2001 Abstract: This paper studies optimal fiscal and monetary policy under imperfect competition in a stochastic, flexible-price, production economy without capital. It shows analytically that in this economy the nominal interest rate acts as an indirect tax on monopoly profits. Unless the social planner has access to a direct 100 percent tax on profits, he will always find it optimal to deviate from the Friedman rule by setting a positive and time-varying nominal interest rate. The dynamic properties of the Ramsey allocation are characterized numerically. As in the perfectly competitive case, the labor income tax is remarkably smooth, whereas inflation is highly volatile and serially uncorrelated. An exact numerical solution method to the Ramsey conditions is proposed.
Number of Pages in PDF File: 28 Keywords: Optimal Fiscal and Monetary Policy, Friedman rule, Imperfect competition JEL Classification: E52, E61, E63 working papers seriesDate posted: January 29, 2001Suggested CitationContact Information
|
|
|||||||||||||||||||||||||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo2 in 0.516 seconds
