Optimal Monetary Policy with Informality:A First Pass

Gomez Ospina, Monica A.; Hairault, Jean Olivier

doi:https://doi.org/10.48713/10336_45577

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Optimal Monetary Policy with Informality:A First Pass

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dc.creator	Gomez Ospina, Monica A.	spa
dc.creator	Hairault, Jean Olivier	spa
dc.date.accessioned	2025-06-05T20:21:22Z
dc.date.available	2025-06-05T20:21:22Z
dc.date.created	2020-06-01	spa
dc.date.issued	2020-06-01	spa
dc.description	Our paper aims to unveil how much the monetary policy shall deviate from the flexible-price allocation in an economy with a large informal sector. First of all, the presence of variable taxes in the formal sector generates an inflation bias under discretionary policy which increases with the size of the informal sector. Secondly, we find that only the formal sector due to tax distortion fluctuations is responsible for cost push shocks which are amplified in a more informal economy. The trade-off between inflation and the formal output gap is then dependent on the elasticity of the former variable with respect to the latter one, which is lower in a more informal economy. However, the optimal management of inflation also depends on the elasticity of the informal output gap with respect to the formal output gap. As this elasticity is decreasing with the size of the informal sector, whether inflation volatility (in terms of the aggregate output gap) is lower or higher in a more informal economy is ambiguous. By simulation, we show that economies with a larger informal sector should stabilize more inflation relative to the two sectoral output gaps.	spa
dc.format.extent	15 pp	spa
dc.format.mimetype	application/pdf	spa
dc.identifier.doi	https://doi.org/10.48713/10336_45577
dc.identifier.uri	https://repository.urosario.edu.co/handle/10336/45577
dc.language.iso	eng	spa
dc.publisher	Universidad del Rosario	spa
dc.publisher	Alianza EFI	spa
dc.publisher.department	Facultad de Economía	spa
dc.rights	Attribution-NonCommercial-NoDerivatives 4.0 International	spa
dc.rights.accesRights	info:eu-repo/semantics/openAccess	spa
dc.rights.acceso	Abierto (Texto Completo)	spa
dc.rights.uri	http://creativecommons.org/licenses/by-nc-sa/4.0/	spa
dc.source.instname	instname:Universidad del Rosario	spa
dc.source.reponame	reponame:Repositorio Institucional EdocUR	spa
dc.subject.keyword	Informality	eng
dc.subject.keyword	Optimal monetary policy	eng
dc.subject.keyword	New-Keynesian macroeconomics	eng
dc.subject.keyword	Tax distortion	eng
dc.title	Optimal Monetary Policy with Informality:A First Pass	spa
dc.type	workingPaper	spa
dc.type.hasVersion	info:eu-repo/semantics/publishedVersion	spa
dc.type.spa	Documento de trabajo	spa
local.department.report	Facultad de Economía