Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/253458 
Authors: 
Year of Publication: 
2021
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 16 [Issue:] 2 [Publisher:] The Econometric Society [Place:] New Haven, CT [Year:] 2021 [Pages:] 677-716
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
In locally linearized dynamic stochastic rational-expectations models, I introduce the concepts of feasible paths (paths on which the policy instrument can be expressed as a function of the policymaker's observation set) and implementable paths (paths that can be obtained, in a minimally robust way, as the unique local equilibrium under a policy-instrument rule consistent with the policymaker's observation set). I show that, for relevant observation sets, the optimal feasible path under monetary policy can be non-implementable in the New Keynesian model, while constant-debt feasible paths under tax policy are always implementable in the Real Business Cycle model. The first result sounds a note of caution about one of the main lessons of the New Keynesian literature, namely the importance for central banks to track some key unobserved exogenous rates of interest, while the second one restores to some extent the role of income or labor-income taxes in safely stabilizing public debt. For any given implementable path, I show how to design arithmetically a policy-instrument rule consistent with the policymaker's observation set and implementing this path as the robustly unique local equilibrium.
Subjects: 
Stabilization policy
local-equilibrium determinacy
observation set
feasible path
implementable path
optimal monetary policy
debt-stabilizing tax policy
JEL: 
E32
E52
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.