In previous work (Eggertsson and Woodford, 2003), we characterized the optimal conduct of monetary policy when a real disturbance causes the natural rate of interest to be temporarily negative, so that the zero lower bound on nominal interest rates binds, and showed that commitment to a...

Recent work in optimal trade policy for imperfectly competitive markets usually identifies the optimal level of an instrument, and when more instruments are allowed, general interpretations have been unavailable, This paper analyzes the jointly optimal levels of a Variety of instruments with...

We provide an introduction to optimal fiscal and monetary policy using the primal approach to optimal taxation. We use this approach to address how fiscal and monetary policy should be set over the long run and over the business cycle. We find four substantive lessons for policymaking: Capital...

A country that decides to fix its exchange rate thereby gives up control over its own inflation rate and the determination of the revenue received from seigniorage. If the country goes further and uses a foreign money, it loses all seigniorage. This paper uses an optimal inflation tax approach...

Reserve requirements imposed against bank deposits, nominal interest payments on bank reserves (or on base money), and inflation can all be viewed as generating tax effects. Any analysis of optimal monetary policy in a steady-state equilibrium needs to consider the simultaneous choice of all the...

We propose an integrated treatment of the problems of optimal monetary and fiscal policy, for an economy in which prices are sticky and the only available sources of government revenue are distorting taxes. Our linear-quadratic approach allows us to nest both conventional analyses of optimal...