Optimal monetary growth with accommodating fiscal policy in a small open economy
AbstractThis paper emphasizes how the choice of the optimal monetary growth rate in a small open economy under perfect capital mobility depends upon the accommodating policy chosen to maintain the overall budget constraint in the economy. When this occurs through lump sum taxation, the optimal monetary growth rate is shown to be the "distorted" Friedman monetary rule. If the adjustment occurs through the income tax rate, the optimal monetary growth rate involves a Phelps-type tradeoff between the income tax rate and the inflation tax rate. The framework is suited for analyzing optimal macroeconomic policy in general and the latter part of the paper considers an optimal monetary-fiscal package.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Money and Finance.
Volume (Year): 6 (1987)
Issue (Month): 2 (June)
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Web page: http://www.elsevier.com/locate/inca/30443
Other versions of this item:
- Stephen J. Turnovsky, 1987. "Optimal Monetary Growth with Accomodating Fiscal Policy in a Small Open Economy," NBER Working Papers 2084, National Bureau of Economic Research, Inc.
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