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Robust policymaking in the face of sudden stops

  • Young, Eric R.

This paper considers tax policies to deal with Sudden Stops – declines in aggregate activity that are magnified by a binding collateral constraint – that occasionally occur in emerging market economies. Households and/or the government are assumed to face model uncertainty and desire robustness against alternative models. Welfare gains from optimal taxation are small if the government trusts its model of household expectations, whether those expectations are altered by model uncertainty or not; in contrast, welfare losses are large if the government is uncertain about the household's probability model.

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File URL: http://www.sciencedirect.com/science/article/pii/S030439321200058X
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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 59 (2012)
Issue (Month): 5 ()
Pages: 512-527

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Handle: RePEc:eee:moneco:v:59:y:2012:i:5:p:512-527
DOI: 10.1016/j.jmoneco.2012.05.005
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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  1. Gianluca Benigno & Huigang Chen & Christopher Otrok & Alessandro Rebucci & Eric Young, 2011. "Financial Crises and Macro-Prudential Policies," Research Department Publications 4710, Inter-American Development Bank, Research Department.
  2. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2004. "Financial development and the instability of open economies," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1077-1106, September.
  3. Reinhart, Carmen & Calvo, Guillermo, 2000. "When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options," MPRA Paper 6982, University Library of Munich, Germany.
  4. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
  5. Strzalecki, Tomasz, 2011. "Axiomatic Foundations of Multiplier Preferences," Scholarly Articles 14397610, Harvard University Department of Economics.
  6. Luo, Yulei & Nie, Jun & Young, Eric, 2014. "Model Uncertainty and Intertemporal Tax Smoothing," MPRA Paper 54268, University Library of Munich, Germany.
  7. Albert Marcet & Ramon Marimon, 2011. "Recursive Contracts," CEP Discussion Papers dp1055, Centre for Economic Performance, LSE.
  8. Mark Aguiar & Manuel Amador, 2010. "Growth in the Shadow of Expropriation," 2010 Meeting Papers 1194, Society for Economic Dynamics.
  9. Anastasios G. Karantounias with Lars Peter Hansen & Thomas J. Sargent, 2009. "Managing expectations and fiscal policy," FRB Atlanta Working Paper 2009-29, Federal Reserve Bank of Atlanta.
  10. Enrique G. Mendoza, 2001. "Credit, Prices, and Crashes: Business Cycles with a Sudden Stop," NBER Working Papers 8338, National Bureau of Economic Research, Inc.
  11. Huigang Chen & Eric Young & Christopher Otrok & Alessandro Rebucci & Gianluca Benigno, 2013. "Optimal Policy for Macro-Financial Stability," 2013 Meeting Papers 636, Society for Economic Dynamics.
  12. Lars Peter Hansen & Thomas J. Sargent & Thomas D. Tallarini Jr., 1997. "Robust Permanent Income and Pricing," Levine's Working Paper Archive 596, David K. Levine.
  13. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, vol. 115, pages 69-102.
  14. Paul Klein & Per Krusell & José-Víctor Ríos-Rull, 2008. "Time-Consistent Public Policy," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 789-808.
  15. Frederick van der Ploeg, 1993. "A Closed-form Solution for a Model of Precautionary Saving," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 385-395.
  16. Dennis, Richard, 2010. "How robustness can lower the cost of discretion," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 653-667, September.
  17. Svec, Justin, 2012. "Optimal fiscal policy with robust control," Journal of Economic Dynamics and Control, Elsevier, vol. 36(3), pages 349-368.
  18. Lars Peter Hansen & Thomas J. Sargent, 2007. "Introduction to Robustness," Introductory Chapters, in: Robustness Princeton University Press.
  19. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  20. Braggion, Fabio & Christiano, Lawrence J. & Roldos, Jorge, 2009. "Optimal monetary policy in a [`]sudden stop'," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 582-595, May.
  21. Thomas Tallarini, "undated". "Risk-Sensitive Real Business Cycles," GSIA Working Papers 1997-35, Carnegie Mellon University, Tepper School of Business.
  22. Christopher Otrok & Gianluca Benigno & Huigang Chen & Alessandro Rebucci & Eric R. Young, 2012. "Monetary and Macro-Prudential Policies: An Integrated Analysis," Working Papers 1208, Department of Economics, University of Missouri.
  23. Aguiar, Mark & Gopinath, Gita, 2007. "Emerging Market Business Cycles: The Cycle is the Trend," Scholarly Articles 11988098, Harvard University Department of Economics.
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