Keynesian inefficiency and optimal policy: a new monetarist approach

Stephen Williamson

No 2014-9, Working Papers from Federal Reserve Bank of St. Louis

Abstract: A simple model of monetary/labor search is constructed to study Keynesian indeterminacy and optimal policy. In the model, economic agents have trouble splitting the surplus from exchange appropriately, and we consider monetary and fiscal policies that correct this Keynesian inefficiency. A Taylor rule does not imply determinacy, nor does it support an efficient outcome, in general. Optimal policies yield an efficient and determinate allocation of resources, but equilibrium policy actions, wages, and prices are indeterminate at the optimum.

JEL-codes: E4 E5 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2014-03-01
New Economics Papers: this item is included in nep-mac and nep-mon
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Journal Article: Keynesian Inefficiency and Optimal Policy: A New Monetarist Approach (2015)
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