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Type: Journal article
Title: Tax distortions and the case for price stability
Author: Collard, F.
Dellas, H.
Citation: Journal of Monetary Economics, 2005; 52(1):249-273
Publisher: Elsevier Science BV
Issue Date: 2005
ISSN: 0304-3932
Statement of
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
RMID: 0020095717
DOI: 10.1016/j.jmoneco.2004.08.003
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Appears in Collections:Economics publications

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