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Indeterminacy and stabilization policy

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  • Jang-Ting Guo
  • Kevin J. Lansing

Abstract

A demonstration of how an income tax schedule that exhibits a progressivity feature can ensure saddle-path stability in a one-sector, real business-cycle model with sufficient increasing returns in production, thereby shielding the economy against sunspot fluctuations.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 9708.

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Date of creation: 1997
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Handle: RePEc:fip:fedcwp:9708

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Keywords: Economic stabilization ; Business cycles;

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References

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  1. Howitt, Peter & McAfee, R Preston, 1992. "Animal Spirits," American Economic Review, American Economic Association, American Economic Association, vol. 82(3), pages 493-507, June.
  2. Roberto Perli, 1995. "Indeterminacy, Home Production, and the Business Cycle: a Calibrated Analysis," Home Pages, University of Pennsylvania _042, University of Pennsylvania.
  3. Schmitt-Grohe, Stephanie & Uribe, Martin, 1997. "Balanced-Budget Rules, Distortionary Taxes, and Aggregate Instability," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(5), pages 976-1000, October.
  4. Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers, UCLA Department of Economics 646, UCLA Department of Economics.
  5. Farmer, Roger E.A. & Woodford, Michael, 1997. "Self-Fulfilling Prophecies And The Business Cycle," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 1(04), pages 740-769, December.
  6. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
  7. Burnside, Craig, 1996. "Production function regressions, returns to scale, and externalities," Journal of Monetary Economics, Elsevier, Elsevier, vol. 37(2-3), pages 177-201, April.
  8. Roger E.A. Farmer, 1994. "Indeterminacy and Sector-Specific Externalities," UCLA Economics Working Papers, UCLA Department of Economics 722, UCLA Department of Economics.
  9. Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 546, Board of Governors of the Federal Reserve System (U.S.).
  10. Farmer Roger E. A. & Guo Jang-Ting, 1994. "Real Business Cycles and the Animal Spirits Hypothesis," Journal of Economic Theory, Elsevier, Elsevier, vol. 63(1), pages 42-72, June.
  11. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 193-227, April.
  12. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, Elsevier, vol. 25(3), pages 380-396, December.
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