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Journal Article
Recalculating Sargent and Wallace’s “Some Unpleasant Monetarist Arithmetic”
This note revisits and extends the seminal analysis by Sargent and Wallace, originally framed in terms of money growth rates. Here, I reexamine their model through two complementary lenses, treating the policy instrument as either (i) a sequence of interest rates or (ii) a sequence of seigniorage. In the process, I revisit Sargent and Wallace’s “spectacular” example and offer a variant that strengthens their conclusions.
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Liquidity and insurance for the unemployed
We study the optimal design of unemployment insurance for workers sampling job opportunities over time. We focus on the optimal timing of benefits and the desirability of allowing workers to freely access a riskless asset. When workers have constant absolute risk aversion preferences, it is optimal to use a very simple policy: a constant benefit during unemployment, a constant tax during employment that does not depend on the duration of the spell, and free access to savings using a riskless asset. Away from this benchmark, for constant relative risk aversion preferences, the welfare gains of ...
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Tax smoothing with redistribution
We study optimal labor and capital taxation in a dynamic economy subject to government expenditure and aggregate productivity shocks. We relax two assumptions from Ramsey models: that a representative agent exists and that taxation is proportional with no lump-sum tax. In contrast, we capture a redistributive motive for distortive taxation by allowing privately observed differences in relative skills across workers. We consider two scenarios for tax instruments: (i) taxation is linear with arbitrary intercept and slope; and (ii) taxation is non-linear and unrestricted as in Mirrleesian ...