TY  - JOUR
AU  - Turnovsky,Stephen J.
TI  - Optimal Monetary Growth with Accomodating Fiscal Policy in a Small Open Economy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2084
PY  - 1987
Y2  - October 1987
UR  - http://www.nber.org/papers/w2084
L1  - http://www.nber.org/papers/w2084.pdf
N1  - Author contact info:
Stephen Turnovsky
Department of Economics
301 Savery Hall; Mail Stop DK 30
University of Washington
Seattle, WA   98195
Tel: 206-545-8028
E-Mail: sturn@u.washington.edu
AB  - This paper emphasizes how the choice of the optimal monetary growth rate in a small open economy under perfect capital mobility depends upon the accommodating policy chosen to maintain the overall budget constraint in the economy. When this occurs through lump sum taxation, the optimal monetary growth rate is shown to be the "distorted" Friedman monetary rule. If the adjustment occurs through the income tax rate, the optimal monetary growth rate involves a Phelps-type tradeoff between the income tax rate and the inflation tax rate. The framework is suited for analyzing optimal macroeconomic policy in general and the latter part of the paper considers an optimal monetary-fiscal package.
ER  -