Capital trading, stock trading, and the inflation tax on equity: a note

The authors show that there is more responsiveness of consumption and output to changes in the money supply than exists in the standard neoclassical growth models.Capital investments

Optimal Fiscal and Monetary Policy with Nominal and Indexed Debt

This paper highlights the importance of debt composition in setting optimal fiscal and monetary policy over short-run business cycles and in the long run. Nominal debt as state-contingent debt can be a significant policy tool to reduce the volatility of distortionary government policy, thereby reducing macroeconomic volatility while increasing equilibrium output and consumption. The welfare gain from using nominal debt to hedge against shocks to the government budget is as large as the welfare gain from the ability to issue debt.Economic models;money growth, inflation, government spending, government budget, monetary policy, price level, budget constraint, government budget constraint, taxation, government spending shocks, real value, nominal interest rate, government revenue, tax revenue, monetary economics, money supply, tax policy, real interest rate, increase in consumption, public finance, public debt, stock of money, tax rates, fiscal policy, tax burden, money stock, rate of inflation, government budget constraints, printing money, debt service, tax income, government expenditures, budget deficits, real interest rates, taxes on labor, inflation stabilization, budget constraints

Solving Ramsey Problems with Nonlinear Projection Methods

This paper applies nonlinear projection methods to solve Ramsey problems in a stochastic monetary economy. The presence of nonlinear distortions in the Ramsey problem requires the use of a solution procedure which captures these effects. The nonlinear projection method, even with low-order Chebyshev polynomials as employed in this paper, is able to capture a significant portion of the Jensen's inequality effects. As an example of the usefulness of nonlinear projection methods, we examine Barro's (1987, 1979) conjecture that welfare gains are available from policy smoothing with debt. Increases in the volatility of distortionary monetary policy are more than offset by declines in the volatility of distortionary labor taxes so that introduction of debt is welfare enhancing.

1 VERIFICATION AND VALIDATION OF SCIENTIFIC AND ECONOMIC MODELS

As modeling techniques become increasingly popular and effective means for simulating real-world phenomena, it becomes increasingly important to enhance or verify our confidence in them. Verification and validation techniques are neither as widely used nor as formalized as one would expect when applied to simulation models. In this paper, we present our methods and results through two very different case studies: a scientific model and an economic model. We show that we were able to successively verify the simulations and, in turn, identify general guidelines on the best approach to a new simulation experiment. We also draw conclusions on effective verification and validation techniques and note their applicability

Capital Trading, Stock Trading, and the Inflation Tax on Equity: A Note

(Copyright: Elsevier)