Ravenna, Federico; Walsh, Carl E. - 2009
% productivity shock when ¯w =
w
ss
(0.5) and the optimal fiscal (tax) and monetary policy is implemented. A produc-
tivity increase … function and L
it
= N
it
h
it
is the firm’s labor input. A
t
is an
aggregate productivity shock that follows the process
log … additive productivity shock (see the Appendix).
5
When a tax policy is not available, we assume retail revenues are subsidized …