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Optimal fiscal and monetary policy: some recent results

Varadarajan Chari (), Lawrence Christiano () and Patrick Kehoe ()

No 147, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: This paper studies the quantitative properties of fiscal and monetary policy in business cycle models. In terms of fiscal policy, optimal labor tax rates are virtually constant and optimal capital income tax rates are close to zero on average. In terms of monetary policy, the Friedman rule is optimal—nominal interest rates are zero—and optimal monetary policy is activist in the sense that it responds to shocks to the economy.

Keywords: Fiscal policy; Monetary policy (search for similar items in EconPapers)
Date: 1991
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Published in Journal of Money, Credit, and Banking (Vol.23, n.3, Part 2, August 1991, pp. 519-539)

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