On the Flexibility of Monetary Policy: The Case of the Optimal Inflation Tax

Guillermo Calvo and Pablo Guidotti

The Review of Economic Studies, 1993, vol. 60, issue 3, 667-687

Abstract: This paper examines optimal monetary policy under uncertainty in a context in which policy makers are able to make credible policy commitments. We study an optimal taxation problem of minimizing the social cost of financing a stochastic and exogenous level of government transfers. Since, in the basic model, the welfare costs of inflation derive only from expected inflation, the optimal monetary policy is highly responsive to the state of nature. In a benchmark case in which all shocks are transitory, the optimal policy calls for loading all the variability of government transfers on the shoulders of the inflation tax.

Date: 1993
References: Add references at CitEc
Citations: View citations in EconPapers (57)

Downloads: (external link)
http://hdl.handle.net/10.2307/2298130 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:60:y:1993:i:3:p:667-687.

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().