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|Title:||Tax distortions and the case for price stability|
|Citation:||Journal of Monetary Economics, 2005; 52(1):249-273|
|Publisher:||Elsevier Science BV|
|Fabrice Collard and Harris Dellas|
|Abstract:||We investigate the case for price stability in the general version of the New Keynesian (NNS) model with capital and several shocks. The model includes, in addition to the standard imperfect competition and monetary frictions, a non-trivial, endogenous tax distortion. We find that the case for perfect price stability is not significantly weakened. Optimal policy tolerates a small amount of output gap and price variability by reacting less strongly to supply and fiscal shocks in comparison to a policy that aims at perfect price stabilization.|
|Keywords:||Price stability; Tax distortions; Optimal monetary policy|
|Appears in Collections:||Economics publications|
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