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Optimal Fiscal and Monetary Policy in Customer Markets

David Arseneau, Ryan Chahrour, Sanjay Chugh and Alan Finkelstein Shapiro ()

Journal of Money, Credit and Banking, 2015, vol. 47, issue 4, 617-672

Abstract: We present a model in which some goods trade in “customer markets” and advertising facilitates long‐lived relationships. We estimate the model on U.S. data and find a large congestion externality in the pricing of customer market goods. This motivates the analysis of optimal policy. Under a complete set of taxes, fiscal policy eliminates the externalities with large adjustments in tax rates on customer markets goods, while labor tax volatility remains low. Constraining the instruments to the interest rate and labor tax, the optimal labor tax displays large and procyclical fluctuations, but monetary policy is little changed compared to a model with no customer markets.

Date: 2015
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https://doi.org/10.1111/jmcb.12223

Related works:
Working Paper: Optimal Fiscal and Monetary Policy in Customer Markets (2013) Downloads
Working Paper: Optimal fiscal and monetary policy in customer markets (2008) Downloads
Working Paper: Optimal Fiscal and Monetary Policy in Customer Markets (2008) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:47:y:2015:i:4:p:617-672

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