TY  - JOUR
AU  - Benigno,Pierpaolo
AU  - Woodford,Michael
TI  - Optimal Monetary and Fiscal Policy: A Linear Quadratic Approach
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9905
PY  - 2003
Y2  - August 2003
UR  - http://www.nber.org/papers/w9905
L1  - http://www.nber.org/papers/w9905.pdf
N1  - Author contact info:
Pierpaolo Benigno
Dipartimento di Scienze Economiche e Aziendali
Luiss Guido Carli
Viale Romania 32
00197 Rome
ITALY
Tel: 39-0685225-552
E-Mail: pbenigno@luiss.it

Michael Woodford
Department of Economics
Columbia University
420 W. 118th Street
New York, NY 10027
Tel: 212/854-1094
Fax: 212-854-8059
E-Mail: mw2230@columbia.edu
M1  - published as Pierpaolo Benigno, Michael Woodford. "Optimal Monetary and Fiscal Policy: A Linear-Quadratic Approach," in Mark Gertler and Kenneth Rogoff, editors, "NBER Macroeconomics Annual 2003, Volume 18" The MIT Press (2004)

AB  - We propose an integrated treatment of the problems of optimal monetary and fiscal policy, for an economy in which prices are sticky and the only available sources of government revenue are distorting taxes. Our linear-quadratic approach allows us to nest both conventional analyses of optimal monetary stabilization policy and analyses of optimal tax-smoothing as special cases of our more general framework. We show how a linear-quadratic policy problem can be derived which yields a correct linear approximation to the optimal policy rules from the point of view of the maximization of expected discounted utility in a dynamic stochastic general-equilibrium model. Finally, we derive targeting rules through which the monetary and fiscal authorities may implement the optimal equilibrium.
ER  -