| Abstract: | A simple model of monetary/labor search is constructed to study Keynesian indeterminacy and optimal policy. In the model, economic agents have trouble splitting the surplus from exchange appropriately, and we consider monetary and fiscal policies that correct this Keynesian inefficiency. A Taylor rule neither implies determinacy, nor does it support an efficient outcome. An optimal policy yields an efficient and determinate allocation of resources, but equilibrium policy actions, wages, and prices are indeterminate at the optimum. |
