Advanced Search
MyIDEAS: Login to save this paper or follow this series

The comeback of inflation as an optimal public finance tool

Contents:

Author Info

  • Di Bartolomeo Giovanni
  • Acocella Nicola
  • Tirelli Patrizio

Abstract

We challenge the widely held belief that New-Keynesian models cannot predict optimal positive inflation rates. In fact these are justified by the Phelps argument that monetary financing can alleviate the burden of distortionary taxation. We obtain this result because, in contrast with previous contributions, our model accounts for public transfers as a component of fiscal outlays. We also contradict the view that the Ramsey policy should minimize inflation volatility and induce near-random walk dynamics of public debt in the long-run. In our model it should instead stabilize debt-to-GDP ratios in order to mitigate steady-state distortions. Our results thus provide theoretical support to policy-oriented analyses which call for a reversal of debt accumulated in the aftermath of the 2008 financial crisis.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://wp.comunite.it/data/wp_no_100_2013.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Department of Communication, University of Teramo in its series wp.comunite with number 0100.

as in new window
Length:
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:ter:wpaper:0100

Contact details of provider:
Web page: http://wp.comunite.it/

Related research

Keywords: trend inflation; monetary and fiscal policy; Ramsey plan;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Markus Knell & Helmut Stix, 2005. "The Income Elasticity of Money Demand: A Meta-Analysis of Empirical Results ," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 19(3), pages 513-533, 07.
  2. Konstantinos Angelopoulos & Apostolis Philippopoulos & Vanghelis Vassilatos, 2007. "Rent-seeking competition from state coffers in a calibrated DSGE model of the euro area," Working Papers, Business School - Economics, University of Glasgow 2007_29, Business School - Economics, University of Glasgow.
  3. Alonso-Ortiz, Jorge & Rogerson, Richard, 2010. "Taxes, transfers and employment in an incomplete markets model," Journal of Monetary Economics, Elsevier, Elsevier, vol. 57(8), pages 949-958, November.
  4. Aubhik Khan & Robert G. King & Alexander L. Wolman, 2000. "Optimal monetary policy," Working Paper, Federal Reserve Bank of Richmond 00-10, Federal Reserve Bank of Richmond.
  5. Angelopoulos, Konstantinos & Philippopoulos, Apostolis & Vassilatos, Vanghelis, 2009. "The social cost of rent seeking in Europe," European Journal of Political Economy, Elsevier, vol. 25(3), pages 280-299, September.
  6. Guido Ascari & Efrem Castelnuovo & Lorenza Rossi, 2010. "Calvo vs. Rotemberg in a Trend Inflation World: An Empirical Investigation," "Marco Fanno" Working Papers 0116, Dipartimento di Scienze Economiche "Marco Fanno".
  7. Olivier Coibion & Yuriy Gorodnichenko & Johannes Wieland, 2012. "The Optimal Inflation Rate in New Keynesian Models: Should Central Banks Raise Their Inflation Targets in Light of the Zero Lower Bound?," Review of Economic Studies, Oxford University Press, vol. 79(4), pages 1371-1406.
  8. Sarah Zubairy, 2014. "On Fiscal Multipliers: Estimates From A Medium Scale Dsge Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 169-195, 02.
  9. S. Boragan Aruoba & Frank Schorfheide, 2011. "Sticky Prices versus Monetary Frictions: An Estimation of Policy Trade-Offs," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 60-90, January.
  10. Sbordone, Argia M., 2002. "Prices and unit labor costs: a new test of price stickiness," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(2), pages 265-292, March.
  11. Caporale, Tony & McKiernan, Barbara, 1997. "High and variable inflation: Further evidence on the Friedman hypothesis," Economics Letters, Elsevier, Elsevier, vol. 54(1), pages 65-68, January.
  12. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
  13. Aizenman, Joshua & Marion, Nancy, 2011. "Using inflation to erode the US public debt," Journal of Macroeconomics, Elsevier, Elsevier, vol. 33(4), pages 524-541.
  14. Olivier Coibion & Yuriy Gorodnichenko & Johannes Wieland, 2010. "The Optimal Inflation Rate in New Keynesian Models," Working Papers, Department of Economics, College of William and Mary 91, Department of Economics, College of William and Mary.
  15. Guerron-Quintana, Pablo A., 2009. "Money demand heterogeneity and the great moderation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(2), pages 255-266, March.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ter:wpaper:0100. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Giovanni Di Bartolomeo).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.