Infinitely repeated games have been used to argue that reputation can substitute for commitment in monetary policymaking. A drawback of this approach is that it implies multiple equilibria. I argue that nominal asset prices can be used as an equilibrium selection mechanism. First, I introduce...

We study macroeconomic stabilization when monetary and fiscal policies interact via their effects on output and inflation and the monetary authority is more conservative than the fiscal. We find that monetary-fiscal interactions result in poor macroeconomic stabilization. With both policies...

We study optimal capital taxation under limited commitment. We prove that the optimal tax rate on capital income should be positive in steady state and should be increasing over time provided that full risk-sharing is not feasible. In a limited commitment environment, a one unit increase of...

In this paper we study optimal taxation in a dynamic game played by a sequence of governments, one for each time period, and a private sector composed of a continuum of households. We focus on the Markov-perfect equilibrium of this game under two assumptions on the extent of government's...

This paper studies the optimality of a minimum wage law when it is used, jointly with a distortionary tax-transfer scheme, to redistribute income among agents with different marginal productivity. We build a dynamic and stochastic general equilibrium model with a Ramsey planner making decisions...

Where the state evolves according to a discrete-state Markov chain, we sustain Lucas and Stokey's debt structure dynamics by having it emerge sequentially as the unique outcome of a sequence of choices made by two sequences of independent government departments. Each period a tax authority sets...

We study how the use of judgement or add-factors in macroeconomic forecasting may disturb the set of equilibrium outcomes when agents learn using recursive methods. We isolate conditions under which "exuberance equilibria" exist in standard macroeconomic environments. These equilibria may...

We consider the appropriate objective for monetary stabilization policy in a canonical “new Keynesian†model with staggered pricing of the kind proposed by Calvo (1983), but with a complete DSGE structure of the kind presented by Yun (1996) or Woodford (2003). It is shown that under...

Robust control allows policymakers to formulate policies that guard against model misspecification. The principal tools used to solve robust control problems are state-space methods (see Hansen and Sargent, 2005, and Giordani and Soderlind, 2004). In this paper we show that the structural-form...

We focus on a quantitative assessment of rigid labor markets in an environment of stable monetary policy. We ask how wages and labor market shocks feed into the inflation process and derive monetary policy implications. We structurally model matching frictions and rigid wages in line with an...