Robust policymaking in the face of sudden stops

Eric Young

Journal of Monetary Economics, 2012, vol. 59, issue 5, 512-527

Abstract: This paper considers tax policies to deal with Sudden Stops – declines in aggregate activity that are magnified by a binding collateral constraint – that occasionally occur in emerging market economies. Households and/or the government are assumed to face model uncertainty and desire robustness against alternative models. Welfare gains from optimal taxation are small if the government trusts its model of household expectations, whether those expectations are altered by model uncertainty or not; in contrast, welfare losses are large if the government is uncertain about the household's probability model.

Date: 2012
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:59:y:2012:i:5:p:512-527

DOI: 10.1016/j.jmoneco.2012.05.005

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