The Friedman Rule in a Two Sector Small Open Economy

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The Friedman Rule in a Two Sector Small Open Economy

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Alexandre Cunha

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Alexandre Barros da Cunha

Abstract

This paper investigates the properties of optimal monetary and fiscal policy in a two sector small open economy. If the government can optimally select all possible distorting tax rates, then it can implement Pareto efficient outcomes and the Friedman Rule is found to be a necessary condition for this. If the government can select only some of these tax rates, then second best policies may also display the Friedman rule as a feature. However, this last result depends on the set of tax instruments the government can choose from

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Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 530.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:530

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Find related papers by JEL classification:
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization

This paper has been announced in the following NEP Reports:

NEP-ALL-2004-08-16 (All new papers)
NEP-MON-2004-08-16 (Monetary Economics)

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Other versions:
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Other versions:
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Other versions:
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Other versions:
- Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Optimal Fiscal and Monetary Policy Under Sticky Prices," NBER Working Papers 9220, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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repec:cup:macdyn:v:7:y:2003:i:3:p:333-62 is not listed on IDEAS
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Other versions:
- Isabel Correia & Pedro Teles, 1997. "The optimal inflation tax," Discussion Paper / Institute for Empirical Macroeconomics 123, Federal Reserve Bank of Minneapolis. [Downloadable!]

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