Optimal Monetary and Fiscal Policies in a Search Theoretic Model of Monetary Exchange∗
نویسندگان
چکیده
Search models of monetary exchange commonly assume that terms of trade in decentralized markets are determined via Nash bargaining. Bargaining frictions add to the classical intertemporal distortion present in most monetary models, whereby agents work today to obtain cash that can be used only in future transactions. More important, bargaining frictions may cause underproduction in decentralized markets and monetary equilibrium allocations to be inefficient. In this paper, we study the properties of optimal fiscal and monetary policy within the framework of Lagos and Wright (2005). We abstract from revenue-raising motives to focus on the welfare-enhancing properties of optimal policy. We show that subsidies in decentralized markets can be implemented to alleviate underproduction, while money is still essential. Deviations from the Friedman rule may be large, and the existence of fiscal and monetary policies results in considerable welfare gains. When lump sum monetary transfers are not available, a positive production subsidy may be inflationary and welfare reducing. However, sales taxes in the decentralized market and production taxes in the centralized market may increase welfare. The optimality of the Friedman rule in this case depends crucially on the bargaining power of the buyer, and equilibria are not first best. JEL Codes: C70, E40.
منابع مشابه
Effects of Fiscal and Monetary Policies on the Iranian Economy: An Optimal Control Approach
This paper evaluates the interacted effects of the fiscal and monetary policies on the nominal and real macro-variables of the Iranian economy. Our analysis is thus based on the optimal control theory by which the optimal path of the control variables including monetary and fiscal tools are determined over the period 1963-2006. We also use a macro-econometric model in form of a simultaneous equ...
متن کاملThe Threshold Impact of Fiscal and Monetary Policies on Inflation: Threshold Model Approach
The aim of this study is to examine the nonlinear effects of fiscal and monetary policies on inflation during 1990:3 to 2013:1 based on threshold model. First lag of the liquidity growth is recognized as threshold variable with threshold value estimated at 6.37 percent. In low liquidity growth, the results indicate that inflation expectations and the lagged liquidity growth are the most importa...
متن کاملStrategic confrontation within monetary and financial authorities, and foreign exchange market participants in Iran: non-cooperative static games approach
The experience of large fluctuations in the Foreign Exchange Market in Iran and the impact of monetary and fiscal policies on this market revealed the importance of adopting a scientific approach by fiscal and monetary policymakers and paying attention to the behavior of other actors (Foreign Exchange Speculators) in the decision-making. The present study tries to evaluate the Social Loss of ad...
متن کاملQuantitative Determination Of Optimal Fiscal And Monetary Policies: A Stochastic Optimal Control Analysis For Iran
متن کامل
The Impact of Social damages on the Effectiveness of Fiscal and Monetary Policies: The DSGE Approach
The purpose of this study is to investigate the effect of social damages (divorce, crime and addiction) on the effectiveness of fiscal and monetary policies. To achieve this, the literature on endogenous growth models has been used and the relationships of economic agents have been explained in the form of a dynamic stochastic general equilibrium model. In the designed DSGE model, labor produc...
متن کامل