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Aggregate Stability in Monetary Economy with Consumption Tax and Taylor Rule

Fujisaki, Seiya (2016): Aggregate Stability in Monetary Economy with Consumption Tax and Taylor Rule.

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Abstract

We analyze aggregate stability of a monetary economy with an interest-rate control type of monetary policy and endogenous consumption tax rate under balanced-budget rule, in terms of equilibrium determinacy. We find the effect of the response to income in monetary policy on macroeconomic stability depends on whether the consumption tax rate is adequately high.

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