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OPTIMAL MONETARY AND FISCAL POLICIES IN A SEARCH-THEORETIC MODEL OF MONEY AND UNEMPLOYMENT

Published online by Cambridge University Press:  30 August 2012

Pedro Gomis-Porqueras ,
Benoît Julien  and
Chengsi Wang
Pedro Gomis-Porqueras
Affiliation:
Monash University
Benoît Julien
Affiliation:
University of New South Wales
Chengsi Wang*
Affiliation:
University of Mannheim
*
Address correspondence to: Chengsi Wang, Department of Economics, University of Mannheim, D-68131 Mannheim, Germany; e-mail: [email protected].
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Abstract

In this paper we study optimal policies in an environment where search frictions both in labor and goods markets give rise to unemployment and fiat money, as in Berentsen, Menzio, and Wright (American Economic Review, 2011). The underlying frictions that give rise to endogenous unemployment and fiat money also result in inefficient outcomes. Here we show that efficiency can be restored whenever lump sum monetary transfers are possible and a decentralized production subsidy financed by money printing and a vacancy subsidy financed by a dividend tax exist. This is the case even when the Hosios and Friedman rules do not hold.

Keywords

MatchingMoneyUnemploymentFiscal Polices
Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Special Issue 6: Equality, Public Insurance, and Monetary Policy , September 2013 , pp. 1330 - 1354
Copyright
Copyright © Cambridge University Press 2012 

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