Optimal monetary policy with an interest-equalization tax in a two-country macroeconomic model

Article Abstract:

The effects of an interest-equalization subsidy to an optimal monetary policy usinga two-country framework is discussed. Perfect capital mobility does not result in complete output stability in either country. The existence of a cooperative monetary policy would stabilize foreign output, despite domestic IS disturbances. The credibility of this technique is questionable as it states that the domestic country adopt a suboptimal monetary policy. Using an interestequalization tax stabilizer could greatly improve the two country's demand schedules without having any effect in the exchange rate.

Foreign exchange

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The optimal rate of inflation when capital is taxed

Article Abstract:

A maximum rate of inflation higher than Milton Friedman's money growth rule results whenever a government chooses capital taxation. A welfare maximizing rate of inflation that is slightly higher than Friedman's rate but lower than inflation's revenue maximizing rate is achieved. Analysis shows that a government tends to encounter a trade-off whenever an income-related type of capital taxation is used.

Tax Management, Inflation Accounting, Economic aspects, Tax accounting, Taxation

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Optimal monetary and exchange rate policy with a two-tier exchange rate

Article Abstract:

The high mobility of capital can be managed with a two-tier or dual exchange rate system. The effectiveness of the stabilization policy has been shown to be increased under the two-tier system. The coordination of monetary and exchange rate intervention rules becomes feasible under the system because the policymaker is able to separate the current account market from the asset markets.

Methods, Management, Economic stabilization, Foreign exchange market

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