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Optimal Fiscal and Monetary Policy: Equivalence Results

  • Isabel Correia
  • Juan Pablo Nicolini
  • Pedro Teles

In this article, we analyze the implications of price-setting restrictions for the conduct of cyclical fiscal and monetary policy. We consider standard monetary economies that differ in the price-setting restrictions imposed on the firms. We show that, independently of the degree or type of price stickiness, it is possible to implement the same efficient set of allocations and that each allocation in that set is implemented with policies that are also independent of the price stickiness. In this sense, environments with different price-setting restrictions are equivalent. (c) 2008 by The University of Chicago. All rights reserved..

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File URL: http://www.journals.uchicago.edu/doi/pdf/10.1086/533504
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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 116 (2008)
Issue (Month): 1 (02)
Pages: 141-170

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Handle: RePEc:ucp:jpolec:v:116:y:2008:i:1:p:141-170
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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  1. Clarida, R. & Gali, J. & Gertler, M., 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Working Papers 99-13, C.V. Starr Center for Applied Economics, New York University.
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  9. Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Optimal Fiscal and Monetary Policy Under Sticky Prices," Departmental Working Papers 200105, Rutgers University, Department of Economics.
  10. Schmitt-Grohé, Stephanie & Uribe, Martín, 2001. "Optimal Fiscal and Monetary Policy under Imperfect Competition," CEPR Discussion Papers 2688, C.E.P.R. Discussion Papers.
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  13. Bernardino Adao, 2000. "Gaps and Triangles," Econometric Society World Congress 2000 Contributed Papers 1904, Econometric Society.
  14. Fiorella De Fiore & Pedro Teles, 2002. "The optimal mix of taxes on money, consumption and income," Working Paper Series WP-02-03, Federal Reserve Bank of Chicago.
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  19. Robert King & Alexander L. Wolman, 1999. "What Should the Monetary Authority Do When Prices Are Sticky?," NBER Chapters, in: Monetary Policy Rules, pages 349-404 National Bureau of Economic Research, Inc.
  20. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
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