In this paper we study jointly optimal fiscal and monetary policies in a small open economy framework with capital and sticky prices. We consider the case of distortionary taxes on labor and capital, and no public debt. As in a closed economy set–up, in the steady state, the optimal inflation rate is zero, as well as the optimal tax on capital. The dynamic properties of optimal monetary and fis...

This paper studies optimal sovereign debt policy of the government with limited commitment and compare the optimal policies in economies with and without government’s private capital control. The comparison of optimal sovereign debt policies can rationalize why more financially open market economies show more severe allocation puzzle — more negative relationship between growth and public capita...

China maintains tight controls over its capital account. Its current policy regime also features financial repression, under which banks are required to extend funds state-owned enterprises (SOEs) at favorable terms, despite their lower average productivity than private firms. We incorporate these into a general equilibrium model. Our model illustrates tradeoff between aggregate and inter-tempo...

Many recent studies have argued that it is useful to introduce a third input into the neoclassical production technology which encapsulates productivity enhancing knowledge created in process of production. This input, often called organizational capital, has been shown improve predictions dynamic general equilibrium models, especially at business cycle frequency. In this paper, we study impact...