Optimal monetary policy with imperfect unemployment insurance
In: Journal of economic dynamics & control, Band 34, Heft 3, S. 365-387
ISSN: 0165-1889
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In: Journal of economic dynamics & control, Band 34, Heft 3, S. 365-387
ISSN: 0165-1889
In: The economic journal: the journal of the Royal Economic Society, Band 115, Heft 501, S. F134-F136
ISSN: 1468-0297
In: Journal of development economics, Band 72, Heft 1, S. 117-138
ISSN: 0304-3878
In: FRB Atlanta Working Paper No. 2011-13
SSRN
Working paper
We consider a cash-in-advance economy under uncertainty in which monetary policy sets either short-term nominal interest rates or money supplies. We show that both the initial price level and the distribution of the inflation rate up to its expectation are indeterminate, regardless of the degree of competition or the flexibility of prices in commodity markets. This indeterminacy is not related to the stability of a deterministic steady state.
BASE
Monetary and fiscal policy do not determine the stochastic path of prices: in the absence of financial policy, there remains indeterminacy indexed by an arbitrary probability measure over the set of states of the world. With an interest rate policy, and only if the asset market is complete, indeterminacy is nominal: it affects prices, but not the allocation of resources at equilibrium; with a money-supply policy, the indeterminacy is real. Portfolio policy sets the portfolio of assets that the monetary authority employs in open market operations; it determines the equilibrium if the policy is non-Ricardian, but not otherwise; financial rate policy, which sets the rates of return of elementary securities, the contingent price of revenue at each dateevent determines equilibrium allocations and prices. long-lived nominally riskless assets can substitute for assets with contingent payoffs; financial policy, then, sets the maturity structure of debt or the yield curve.
BASE
We compare the dynamics of inflation and bond yields leading up to a sovereign debt crisis in settings where asset markets are frictionless to other settings with financial frictions. As compared with the case with frictionless asset markets, an asset market structure with financial frictions generates a significant delay in the response of prices to news about a future debt crisis. With complete markets, prices jump in response to news about the possibility of a future debt crisis. However, when short selling of government bonds is restricted, some agents can't act on their beliefs, and prices don't respond to the news. Instead, prices only move in periods immediately prior the crisis.
BASE
In: American economic review, Band 105, Heft 11, S. 3443-3470
ISSN: 1944-7981
We consider an economy where individuals face uninsurable risks to their human capital accumulation and analyze the optimal level of linear taxes on capital and labor income together with the optimal path of government debt. We show that in the presence of such risks, it is beneficial to tax both labor and capital and to issue public debt. We also assess the quantitative importance of these findings, and show that the benefits of government debt and capital taxes both increase with the magnitude of idiosyncratic risks and the degree of relative risk aversion. (JEL D52, H21, H24, H25, H63, J24)
We consider an economy where individuals face uninsurable risks to their human capital accumulation and analyze the optimal level of linear taxes on capital and labor income together with the optimal path of government debt. We show that in the presence of such risks, it is beneficial to tax both labor and capital and to issue public debt. We also assess the quantitative importance of these findings, and show that the benefits of government debt and capital taxes both increase with the magnitude of idiosyncratic risks and the degree of relative risk aversion.
BASE
We consider an economy where individuals face uninsurable risks to their human capital accumulation and study the problem of determining the optimal level of linear taxes on capital and labor income together with the optimal path of the debt level. We show both analytically and numerically that in the presence of such risks it is beneficial to tax both labor and capital income and to have positive government debt.
BASE
In: FRB Atlanta Working Paper No. 2014-24
SSRN
Working paper
In: FRB Atlanta Working Paper No. 2014-25
SSRN
Working paper
We consider an economy where individuals face uninsurable risks to their human capital accumulation, and study the problem of determining the optimal level of linear taxes on capital and labor income together with the optimal path of the debt level. We show both analytically and numerically that in the presence of such risks it is bene cial to tax both labor and capital income and to have positive government debt.
BASE
In: CESifo Working Paper Series No. 3560
SSRN
In: Journal of Monetary Economics, Band 60, Heft 8, S. 936-949