Essays on macroeconomic policy

In Chapter 1, the optimal choice of the tax rate and the inflation rate framework is extended to yield relevant interpretations for optimal fiscal and monetary policy regimes. Two models assuming different degrees of fiscal dominance are developed. The first model studies the optimal collection of seigniorage with standard assumptions on the income velocity of money, deriving more general testable results: the optimal inflation/tax rate ratio co-vary with the marginal revenue ratio. The second model studies an implication of the inflationary bias of discretionary monetary policy in the presence of fiscal distortions in an optimal government finance problem. Empirical tests of the theoretical results are done for 16 OECD countries for the post-World War II period, classifying these countries into 3 Groups. The test results are consistent with the Bade-Parkin classification for the degree of central bank independence. In Chapter 2, we study an enforceable conservative monetary policy rule and the welfare implications of inflation mitigation policies. By applying Rogoff\u27s idea of appointing a conservative central banker to Barro and Gordon\u27s framework, we derive the optimal degree of conservatism of society in a multiperiod set-up that considers the policymaker\u27s reputation. Using the basic set-up of the conservative monetary policy rule, we reinvestigate the Fischer and Summers\u27 finding on the welfare effects of some inflation mitigation policies in the reputational equilibrium. In Chapter 3, the Calvo\u27s model for the effects and costs of temporary trade liberalization policy is extended and re-examined. First, by adopting a tax loss parameter in the basic model, the situation of incomplete tax compensation associated with temporary policy is analyzed. It is seen that Calvo\u27s results can hold in a more general situation, but only with some restrictions on the parameter values. Second, the implication of the infinite planning horizon of the agent is investigated. By studying an overlapping generations model with the same kind of temporary policy, it is seen that the length of planning horizon matters critically in evaluating the effects and costs of temporary policy