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Risk, Optimal Government Finance and Monetary Policies in a Growing Economy

Author

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  • Earl L. Grinols
  • Stephen J. Turnovsky

Abstract

Optimal tax and monetary policies in a stochastic monetary growth model are investigated. Our findings are of three general types. First, both capital income taxes and monetary growth are shown to influence the economy through effective risk‐adjusted measures, expressed as a linear function of their respective means and variances. Second, two stochastic neutrality results relating to money and bonds, the two nominal assets in the economy, are identified. Third, optimal policy rules relating to taxes, bond finance and money creation are characterized. An essential component of optimal financial policy is a risk‐adjusted balanced budget.

Suggested Citation

  • Earl L. Grinols & Stephen J. Turnovsky, 1998. "Risk, Optimal Government Finance and Monetary Policies in a Growing Economy," Economica, London School of Economics and Political Science, vol. 65(259), pages 401-427, August.
    • Handle: RePEc:bla:econom:v:65:y:1998:i:259:p:401-427
    DOI: 10.1111/1468-0335.00136
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    Cited by:

    1. Addie, Ron & Taranto, Aldo, 2024. "Economic Similarities and their Application to Inflation," EconStor Preprints 283286, ZBW - Leibniz Information Centre for Economics.
    2. Dzhumashev, Ratbek, 2008. "Corruption and Disposable Risk," MPRA Paper 11772, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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