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Keynesian inefficiency and optimal policy: a new monetarist approach

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  • Stephen D. Williamson

Abstract

A simple model of monetary/labor search is constructed to study Keynesian indeterminacy and optimal policy. In the model, economic agents have trouble splitting the surplus from exchange appropriately, and we consider monetary and fiscal policies that correct this Keynesian inefficiency. A Taylor rule does not imply determinacy, nor does it support an efficient outcome, in general. Optimal policies yield an efficient and determinate allocation of resources, but equilibrium policy actions, wages, and prices are indeterminate at the optimum.

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  • Stephen D. Williamson, 2014. "Keynesian inefficiency and optimal policy: a new monetarist approach," Working Papers 2014-9, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2014-009
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Should We Think of Confidence as Exogenous?
      by Stephen Williamson in Stephen Williamson: New Monetarist Economics on 2016-06-22 02:17:00

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    Cited by:

    1. Jung, Kuk Mo & Pyun, Ju Hyun, 2023. "A long-run approach to money, unemployment, and equity prices," Economic Modelling, Elsevier, vol. 125(C).

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    More about this item

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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