Optimal Fiscal and Monetary Policy in Customer Markets
Sanjay Chugh and
Alan Finkelstein Shapiro ()
No 842, Boston College Working Papers in Economics from Boston College Department of Economics
This paper presents a model in which some goods trade in "customer markets." In these markets, advertising plays a critical role in facilitating long-lived relationships. We estimate both policy and non-policy parameters of the model (which includes New-Keynesian frictions) on U.S. data, including advertising expenditures. The estimated parameters imply a large congestion externality in the pricing of customer market goods. This pricing inefficiency motivates the analysis of optimal policy. When the planner has access to a complete set of taxes and chooses them optimally, fiscal policy eliminates the externalities with large adjustments in the tax rates that operate directly in customer markets; labor tax volatility remains low. If available policy instruments are constrained to the interest rate and labor tax, then the latter displays large and procyclical fluctuations, while the implications for monetary policy are largely unchanged from the model with no customer markets.
Keywords: fiscal policy; monetary policy; advertising; customer markets (search for similar items in EconPapers)
JEL-codes: E30 E50 E61 E63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed
Published, Journal of Money, Credit and Banking, 2015, 47, 617-672
Downloads: (external link)
http://fmwww.bc.edu/EC-P/wp842.pdf main text (application/pdf)
Journal Article: Optimal Fiscal and Monetary Policy in Customer Markets (2015)
Working Paper: Optimal fiscal and monetary policy in customer markets (2008)
Working Paper: Optimal Fiscal and Monetary Policy in Customer Markets (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:842
Access Statistics for this paper
More papers in Boston College Working Papers in Economics from Boston College Department of Economics Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F Baum ().