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Ramsey Policies in a Small Open Economy with Sticky Prices and Capital

  • Stéphane Auray

    ()

    (Université Lille 3 (GREMARS), Université de Sherbrooke (GREDI) and CIRPÉE)

  • Beatriz de Blas

    ()

    (Universidad Autonoma de Madrid, Departamento de Analisis Economico)

  • Aurélien Eyquem

    ()

    (GATE, UMR 5824, Université de Lyon and Ecole Normale Supérieure Lettres et Sciences Humaines, France)

In this paper we study jointly optimal ¯scal and monetary policies in a small open economy framework with capital and sticky prices. We consider the case of distor- tionary taxes on labor and capital, and no public debt. As in a closed economy set{up, in the steady state, the optimal in°ation rate is zero, as well as the optimal tax on capital. The dynamic properties of optimal monetary and ¯scal policies in an open economy are qualitatively the same as those of a closed economy: the tax rate on capital income remains constant over the cycle, while both the nominal interest rate and the tax rate on labor income move although very smoothly, respectively to minimize the distortions implied by nominal rigidities and balance the budget.

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File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-0912.pdf
File Function: First version, 2009
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Paper provided by Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke in its series Cahiers de recherche with number 09-12.

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Date of creation: 15 Jun 2009
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Handle: RePEc:shr:wpaper:09-12
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