This paper studies the efficient taxation of money and factor income in intertemporal optimizing growth models with infinite horizons, transaction costs technologies and flexible prices.  Second-best optimality calls for a positive inflation tax and a non-zero capital income tax when there are...

A well-known time-inconsistency problem hinders optimal decision-making when policymakers are constrained in their pesent choices by expectations of future outcomes.  The time-inconsistency problem is caused by differences in the preferences of policymakers who exist at different points in...

This paper investigates how best to determine time-invariant policy rules in macroeconomic models with forward-looking constraints, where fully optimal policy is known to be time-inconsistent.  It proposes a new 'coefficient optimisation' approach that improves upon the timeless perspective...

Time consistency problems can arise when environmental taxes are employed to encourage firms to take irreversible abatement decisions. Setting a high carbon tax, for instance, would induce firms to invest in low-carbon technology, yet once investment has occurred the government can then reduce...

We examine the impact of different degrees of fiscal feedback on debt in an economy with nominal rigidities where monetary policy is optimal. We look at the extent to which different degrees of fiscal feedback enhances or detracts from the ability of the monetary authorities to stabilise output...

This paper shows how to derive a complete set of optimality conditions characterising the solution to a dynamic optimal income tax problem in the spirit of Mirrlees (1971), under the assumption that a 'first-order' approach to incentive compatibility is valid.  The method relies on constructing...

This paper shows that the use of hyperbolic discounting in environmental regulation can have unfortunate consequences. In a three-period model we demonstrate that a planner who `naively` employs hyperbolic discounting and fails to anticipate problems of dynamic inconsistency, can oversee a...

In response to the Great Financial Crisis, the Federal Reserve, the Bank of England and many other central banks have adopted unconventional monetary policy instruments.  We investigate if one of these, purchases of long-term government debt, could be a valuable addition to conventional...

This paper estimates a New Keynesian model to investigate to what extent labour market reforms undertaken by the Thatcher government in the late 1930s and the introduction of a constant inflation target in 1992 might have changed the UK economic outlook if they had been introduced in the early...

Inflation is a far from homogeneous phenomenon, a fact often neglected in modeling consumer price inflation.  Using a novel methodology grounded in theory, the ten sub-components of the consumer price index (excluding mortgage interest rates), are modeled separately and forecast,...