Optimal Fiscal and Monetary Policy

Chari, Christiano, Kehoe, 1991, "Optimal Fiscal and Monetary Policy: Some Recent Results"

• Tax rates on labor are roughly constant over the business cycle,
• Capital income taxes are close to zero on average.
• The Friedman rule is optimal: Nominal interest rates are zero,
• Monetary policy responds to shocks: Money is countercyclical with respect to technology shocks and procyclical with respect to govemment consumption.

http://hassler-j.iies.su.se/courses/DynPubFin/Papers/ChariChristianoKehoe91.pdf