Optimal Monetary and Fiscal Policies In a Search-theoretic Model of Money and Unemployment

Pedro, Gomis-Porqueras and Benoit, Julien and Chengsi, Wang (2010): Optimal Monetary and Fiscal Policies In a Search-theoretic Model of Money and Unemployment.

Abstract

In this paper we study the optimal monetary and fiscal policies of a general equilibrium model of unemployment and money with search frictions both in labor and goods markets as in Berentsen, Menzio and Wright (2010). We abstract from revenue-raising motives to focus on the welfare-enhancing properties of optimal policies. We show that some of the inefficiencies in the Berentsen, Menzio and Wright (2010) framework can be restored with appropriate fiscal policies. In particular, when lump sum monetary transfers are possible, a production subsidy financed by money printing can increase output in the decentralized market and a vacancy subsidy financed by a dividend tax even when the Hosios’ rule does not hold.

• Item Type: MPRA Paper
• Language: English
• Keywords: Search and matching, Fiscal polices,Money, Unemployment, Efficiency
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy ; Stabilization ; Treasury Policy

References

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