TY  - JOUR
AU  - Mankiw,N. Gregory
AU  - Weinzierl,Matthew C.
TI  - An Exploration of Optimal Stabilization Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17029
PY  - 2011
Y2  - May 2011
UR  - http://www.nber.org/papers/w17029
L1  - http://www.nber.org/papers/w17029.pdf
N1  - Author contact info:
N. Gregory Mankiw
Department of Economics
Littauer 223
Harvard University
Cambridge, MA  02138
Tel: 617/495-4301
Fax: 617/495-7730
E-Mail: ngmankiw@fas.harvard.edu

Matthew C. Weinzierl
Harvard Business School
277 Morgan
Soldiers Field
Boston, MA 02163
Tel: 617/495-6697
Fax: 617/496-5994
E-Mail: mweinzierl@hbs.edu
AB  - This paper examines the optimal response of monetary and fiscal policy to a decline in aggregate demand. The theoretical framework is a two-period general equilibrium model in which prices are sticky in the short run and flexible in the long run. Policy is evaluated by how well it raises the welfare of the representative household. While the model has Keynesian features, its policy prescriptions differ significantly from textbook Keynesian analysis. Moreover, the model suggests that the commonly used "bang for the buck" calculations are potentially misleading guides for the welfare effects of alternative fiscal policies.
ER  -