This paper examines the role for tax policies in productivity-shock driven economies with "catching-up-with-the-Joneses" utility functions. The optimal tax policy is shown to affect the economy counter-cyclically via procyclical taxes, i.e., "cooling down" the economy with higher taxes when it...

The Chicago Fed dynamic stochastic general equilibrium (DSGE) model is used for policy analysis and forecasting at the Federal Reserve Bank of Chicago. This article describes its specification and estimation, its dynamic characteristics and how it is used to forecast the US economy. In many...