Three Essays in Macroeconomics of Fiscal and Monetary Policies

This dissertation studies the effects of inflation on long-term economic growth and economic inequality through the interactions of fiscal and monetary policy. Inflation is generated through the faster growth rate of nominal money supply. The fiscal policy in discussion includes different tax schedules, productive government spending, unproductive government spending, and transfer. Chapter one examines the effects of inflation on the distributions of income, earnings, consumption and wealth. We build a dynamic general equilibrium model in which consumers differ in terms of their earning abilities and time preference. Money is introduced via a generalized cash-in-advance constraint. In the quantitative analysis, we first calibrate the model to match the income and wealth distributions in the United States, and other key features of the U.S. economy. We then conduct a series of counterfactual experiments to quantify the distributional impacts of inflation. Chapter two discusses the growth effects of inflation. We build a monetary search model with two subperiods. One subperiod captures the frictional, decentralized trading and bargaining between buyers and sellers. The other subperiod is the centralized, neoclassical growth model. The long-term economic growth is promoted by the productive government spending and the growth rate is endogenously determined. More money on the one hand generates inflation, and on the other, it facilitates stochastic trading and therefore enhances the assets accumulation. Chapter three investigates the question about how the property of the progressive tax affects the relationship between economic inequality and long-term economic growth. We find that heterogeneity has positive (negative) effects on capital accumulation and economic growth if and only if the marginal tax function of the progressive tax is concave (convex)