Hostname: page-component-848d4c4894-m9kch Total loading time: 0 Render date: 2024-05-04T12:44:09.013Z Has data issue: false hasContentIssue false
  • English
  • Français

OPTIMAL MONETARY AND FISCAL POLICIES IN A SEARCH-THEORETIC MODEL OF MONEY AND UNEMPLOYMENT

Published online by Cambridge University Press:  30 August 2012

Pedro Gomis-Porqueras ,
Benoît Julien  and
Chengsi Wang
Pedro Gomis-Porqueras
Affiliation:
Monash University
Benoît Julien
Affiliation:
University of New South Wales
Chengsi Wang*
Affiliation:
University of Mannheim
*
Address correspondence to: Chengsi Wang, Department of Economics, University of Mannheim, D-68131 Mannheim, Germany; e-mail: chengsiwang@gmail.com.
Get access Rights & Permissions [Opens in a new window]

Abstract

In this paper we study optimal policies in an environment where search frictions both in labor and goods markets give rise to unemployment and fiat money, as in Berentsen, Menzio, and Wright (American Economic Review, 2011). The underlying frictions that give rise to endogenous unemployment and fiat money also result in inefficient outcomes. Here we show that efficiency can be restored whenever lump sum monetary transfers are possible and a decentralized production subsidy financed by money printing and a vacancy subsidy financed by a dividend tax exist. This is the case even when the Hosios and Friedman rules do not hold.

Keywords

MatchingMoneyUnemploymentFiscal Polices
Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Special Issue 6: Equality, Public Insurance, and Monetary Policy , September 2013 , pp. 1330 - 1354
Copyright
Copyright © Cambridge University Press 2012 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Aruoba, Boragan, Rocheteau, Guillaume, and Waller, Chris (2007) Bargaining and the value of money. Journal of Monetary Economics 54, 2636–2655.CrossRefGoogle Scholar
Berentsen, Aleksander, Menzio, Guido, and Wright, Randall (2011) Inflation and unemployment in the long run. American Economic Review 101, 371–398.CrossRefGoogle Scholar
Berentsen, Aleksander, Rocheteau, Guillaume, and Shi, Shouyong (2007) Friedman meets Hosios: Efficiency in search models of money. Economic Journal 117, 174–195.CrossRefGoogle Scholar
Chae, Suchan (2002) Tax incidence with bargaining. Economics Letters 77, 199–204.CrossRefGoogle Scholar
Cooley, Thomas and Quadrini, Vincenzo (1999) A neoclassical model of the Phillips curve relation. Journal of Monetary Economics 44, 165–193.CrossRefGoogle Scholar
Cooley, Thomas and Quadrini, Vincenzo (2004) Optimal monetary policy in a Phillips-curve world. Journal of Economic Theory 118, 174–20.CrossRefGoogle Scholar
Feinman, Joshua (1993) Reserve requirements: History, current practice, and potential reform. Federal Reserve Bulletin (June), 569–589.Google Scholar
Friedman, Milton (1959) A Program for Monetary Stability. New York: Fordham University Press.Google Scholar
Gomis-Porqueras, Pedro and Peralta-Alva, Adrian (2010) Optimal monetary and fiscal policies in a search theoretic model of monetary exchange. European Economic Review 54, 331–344.CrossRefGoogle Scholar
Hosios, Arthur (1990) On the efficiency of matching and related models of search unemployment. Review of Economic Studies 57, 279–298.CrossRefGoogle Scholar
Ireland, Peter (1999) Does the time-consistency problem explain the behavior of inflation in the United States? Journal of Monetary Economics 44, 279–291.CrossRefGoogle Scholar
Kalai, Ehud and Smorodinsky, Meir (1975) Other solutions to Nash's bargaining problem. Econometrica 43, 513–518.CrossRefGoogle Scholar
Kocherlakota, Narayana (2005) Optimal monetary policy: What we know and what we don't know. International Economic Review 46, 305–316.CrossRefGoogle Scholar
Kumar, Alok (2008) Inflation and the dispersion of real wages. International Economic Review 49, 377–399.CrossRefGoogle Scholar
Lagos, Ricardo and Wright, Randall (2005) A unified framework for monetary theory and policy analysis. Journal of Political Economy 113, 463–484.CrossRefGoogle Scholar
Lehmann, Etienne (2006) A Search Model of Unemployment and Inflation. IZA Discussion Paper 2194.CrossRefGoogle Scholar
Mortensen, Dale and Pissarides, Chris (1994) Job creation and job destruction in the theory of unemployment. Review of Economic Studies 61, 397–415.CrossRefGoogle Scholar
Ribba, Antonio (2003) Short-run and long-run interaction between inflation and unemployment in the USA. Applied Economics Letters 10, 373–376.CrossRefGoogle Scholar
Tolley, George (1957) Providing for the growth of the money supply. Journal of Political Economy 65, 477–84.CrossRefGoogle Scholar
Walsh, Carl (2003) Labor market search and monetary shocks. In Sumru, Altug, Jagjit, Chadha, and Charles, Nolan (eds.), Elements of Dynamic Macroeconomic Analysis, pp. 451–486. Cambridge University Press.CrossRefGoogle Scholar
Wright, Randall (2005) Introduction to models of monetary economies: II. The next generation. International Economic Review 46, 715–729.CrossRefGoogle Scholar