Arseneau, David, Chahrour, Ryan, Chugh, Sanjay and Shapiro, Alan (2015) Optimal Fiscal and Monetary Policy in Customer Markets. Journal of Money, Credit and Banking. (In Press)

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This paper presents a model in which some goods trade in \customer markets." In these markets, advertising plays a critical role in facilitating long-lived relationships. We estimate both policy and non-policy parameters of the model (which includes New-Keynesian frictions) on U.S. data, including advertising expenditures. The estimated parameters imply a large congestion externality in the pricing of customer market goods. This pricing inefficiency motivates the analysis of optimal policy. When the planner has access to a complete set of taxes and chooses them optimally, fiscal policy eliminates the externalities with large adjustments in the tax rates that operate directly in customer markets; labor tax volatility remains low. If available policy instruments are constrained to the interest rate and labor tax, then the latter displays large and procyclical uctuations, while the implications for monetary policy are largely unchanged from the model with no customer markets.

Item Type: Article
Language: English
Date: 2015
Refereed: Yes
JEL Classification: E30 - General
E50 - General
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 14:48
Last Modified: 02 Apr 2021 15:49
OAI Identifier:
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