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Optimal fiscal and monetary policy: some recent results

  • V. V. Chari
  • Lawrence J. Christiano
  • Patrick J. Kehoe

This paper studies the quantitative properties of fiscal and monetary policy in business cycle models. In terms of fiscal policy, optimal labor tax rates are virtually constant and optimal capital income tax rates are close to zero on average. In terms of monetary policy, the Friedman rule is optimal—nominal interest rates are zero—and optimal monetary policy is activist in the sense that it responds to shocks to the economy.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 147.

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Date of creation: 1991
Date of revision:
Publication status: Published in Journal of Money, Credit, and Banking (Vol.23, n.3, Part 2, August 1991, pp. 519-539)
Handle: RePEc:fip:fedmsr:147
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  1. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)

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