Endogenous Business Cycles and Systematic Stabilization Policy
AbstractWe study the effects of fiscal policy rules on the determinacy of rational expectations equilibrium in a perfectly competitive monetary model with constant returns. Government spending implies a distortion of the monetary steady state due to the implied taxation. We show that policy rules that let the GNP share of government spending sufficiently negatively on increases in GNP stabilize the economy with respect to endogenous fluctuations for arbitrarily little distortion of the steady state of which stabilization occurs. The rules do not involve lump sum taxation, negative income taxation, or exact knowledge of the economy's laissez faire steady state. (JEL E32 and E63 - Keywords: Endogenous business cycles, stabilization policy - Running title: "Endogenous Fluctuations and Stabilization Policy")
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Bibliographic InfoPaper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 02-15.
Date of creation: Feb 2002
Date of revision: Sep 2002
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- Marta Aloi & Teresa Lloyd-Braga & Hans Jørgen Whitta-Jacobsen, 2003. "Endogenous business cycles and systematic stabilization policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 895-915, 08.
- Marta Aloi & Teresa Lloyd-Braga & Hans Jørgen Whitta-Jacobsen, 2002. "Endogenous Business Cycles and Systematic Stabilization Policy," EPRU Working Paper Series 02-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- 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; Treasury Policy
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