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Ramsey Policies in a Small Open Economy with Sticky Prices and Capital

Author

Listed:
  • Stéphane Auray

    (Université Lille 3 (GREMARS), Université de Sherbrooke (GREDI) and CIRPÉE)

  • Beatriz de Blas

    (Universidad Autonoma de Madrid, Departamento de Analisis Economico)

  • Aurélien Eyquem

    (GATE, UMR 5824, Université de Lyon and Ecole Normale Supérieure Lettres et Sciences Humaines, France)

Abstract
In this paper we study jointly optimal ¯scal and monetary policies in a small open economy framework with capital and sticky prices. We consider the case of distor- tionary taxes on labor and capital, and no public debt. As in a closed economy set{up, in the steady state, the optimal in°ation rate is zero, as well as the optimal tax on capital. The dynamic properties of optimal monetary and ¯scal policies in an open economy are qualitatively the same as those of a closed economy: the tax rate on capital income remains constant over the cycle, while both the nominal interest rate and the tax rate on labor income move although very smoothly, respectively to minimize the distortions implied by nominal rigidities and balance the budget.

Suggested Citation

  • Stéphane Auray & Beatriz de Blas & Aurélien Eyquem, 2009. "Ramsey Policies in a Small Open Economy with Sticky Prices and Capital," Cahiers de recherche 09-12, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    • Handle: RePEc:shr:wpaper:09-12
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    References listed on IDEAS

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    Cited by:

    1. Tang Jenn-Hong, 2020. "Ramsey income taxation in a small open economy with trade in capital goods," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(1), pages 1-48, January.
    2. Stéphane Auray & Aurélien Eyquem & Paul Gomme, 2016. "A Tale Of Tax Policies In Open Economies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(4), pages 1299-1333, November.
    3. Franz Hamann & Jesús Bejarano & Diego Rodríguez, 2015. "Monetary policy implications for an oil-exporting economy of lower long-run international oil prices," Borradores de Economia 12615, Banco de la Republica.
    4. Cubizol, Damien, 2020. "Rebalancing in China: A taxation approach," China Economic Review, Elsevier, vol. 60(C).
    5. Jesús Bejarano & Franz Hamann & Paulina Restrepo-Echavarria & Diego Rodríguez, 2016. "Monetary Policy in an Oil-Exporting Economy," Review, Federal Reserve Bank of St. Louis, vol. 98(3), pages 239-261.
    6. Damien Cubizol, 2017. "Rebalancing in China: a taxation approach," Working Papers 1732, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.

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    More about this item

    Keywords

    small open economy; sticky prices; optimal monetary and ¯scal policies;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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