In this project we plan to study the design of optimal fiscal and monetary policies in two contexts: a) in closed economies in which individuals face uncertainty with respect to the length of their lives and the their labour productivity and b) in the framework of monetary union with the same types of uncertainty. The first part of the project will be a quantitative analysis of the optimum level of tax on capital income in and environment in which there exists an explicit motive for redistribution and insurance because of the uncertainly, and where the distortionary effect of the tax are present in the analysis. (...) In addition the project will study the effect of giving the fiscal authority the ability to commit on the optimal fiscal policy. (...) In the second part of this project we analyze the monetary and fiscal Policy interactions to sustain a monetary union. The creation of a monetary union means that domestic monetary policy can not be used to respond to region-specific economic disturbances. Interest rates, in fact, can no longer serve to meet regional targets for inflation and output and, it is hard for a region participating in a monetary union to exert influence over its domestic economic conditions, except for the conducto of fiscal policy. (...) In this project we study how the introduction of participation constrainsts affects the conduct of monetary policy in a monetary union and characterize how differences in the industrial structure, in size, in wealth and institutional differences among region members of a currency union affect the behaviour of the union-wide interest rate and monetary policy, in general.
|Effective start/end date||1/10/06 → 31/12/09|
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