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Keynesian Inefficiency and Optimal Policy: A New Monetarist Approach
Author(s) -
WILLIAMSON STEPHEN D.
Publication year - 2015
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12218
Subject(s) - determinacy , indeterminacy (philosophy) , inefficiency , economics , new keynesian economics , monetary policy , keynesian economics , monetarism , fiscal policy , simple (philosophy) , macroeconomics , monetary economics , microeconomics , mathematics , mathematical analysis , philosophy , physics , epistemology , quantum mechanics
A simple model of monetary/labor search is constructed to study Keynesian indeterminacy and optimal policy. In the model, economic agents have trouble splitting the surplus from exchange appropriately, and we consider monetary and fiscal policies that correct this Keynesian inefficiency. A Taylor rule neither implies determinacy, nor does it support an efficient outcome. An optimal policy yields an efficient and determinate allocation of resources, but equilibrium policy actions, wages, and prices are indeterminate at the optimum.

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