Fixed vs. floating exchange rates: a dynamic general equilibrium analysis
In this study we contrast fixed and floating exchange rate regimes in a dynamic general equilibrium model. We find that the fundamental difference in the regimes is in the courses they imply for monetary policies. Because of policy coordination requirements, a tighter monetary policy needed to maintain a fixed exchange rate may necessitate a tightening in budget policy as well. We show that under some initial conditions voters or a social planner will favor one regime, but under other conditions they will favor the other. However, the choices of voters and a social planner are almost ...
How little we know about budget policy effects
Using a simple model, we show why previous empirical studies of budget policy effects are flawed. Due to an identification problem, those studies? findings can be shown to be consistent with either policies mattering or not.
Optimal income tax in a monetary economy
This study examines the shape of an optimal income tax schedule in a monetary economy. In equilibrium, money?s role is to allocate resources across generations, while a tax-transfer scheme serves as a form of social insurance. It is found that the optimal real income tax with money can be progressive.
The U.S. economy in 1980: shockwaves from 1979
TIP: the wrong way to fight inflation
originally appeared in the Federal Reserve Bank of Minneapolis Quarterly Review, Spring 1978
A reply to Darby
A simple way to estimate current-quarter GNP
This paper describes a method developed to predict the advance (first) estimate of inflation-adjusted gross national product (real GNP) using hours-worked data. Besides generating fairly accurate forecasts of advance GNP, the method has two implications. First, the Commerce Department seems to weigh the hours-worked data most heavily in its early estimates of real GNP but less and less so in its revised estimates. Second, analysts attempting to predict current-quarter outcomes in real time need to consider the availability and reliability of data at the time the forecasts are made.
The tax cut illusion
The jointly optimal inflation tax, income tax structure, and transfers
The welfare-maximizing income tax structure, rate of money creation, and amounts of intergenerational transfers are jointly determined for given rates of government consumption. When government consumption is zero, it is found for the parameter values examined that the income tax structure is progressive, the rate of money change is negative, and positive transfers are made to the old. As government consumption increases, the tax structure's progressivity declines and turns increasingly regressive, the rate of money change rises, and transfers decrease. It is found that the bulk of the ...