Coordination of Expectations and the Informational Role of Policy

Ernesto Pasten and Yang K. Lu
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Yang K. Lu: European University Institute and Hong Kong UST

No 985, 2010 Meeting Papers from Society for Economic Dynamics

Abstract: switch. Instead, policy should anticipate switches with small permanent tax cuts to extend "optimism" and severe transitory tax cuts to break "pessimism." These tax cuts should be reverted once a switch is triggered, when policy must focus on its short run objectives.

Date: 2010
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