Journal Article Optimal Population and Capital over Time: The Maximin Perspective Get access Guillermo A. Calvo Guillermo A. Calvo Columbia University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 1, January 1979, Pages 59–71, https://doi.org/10.2307/2297172 Published: 01 January 1979 Article history Received: 01 January 1977 Accepted: 01 May 1978 Published: 01 January 1979

This paper examines optimal monetary policy under uncertainty in a context in which policymakers are able to make credible policy commitments. The authors study an optimal taxation problem of minimizing the social cost of financing a stochastic and exogenous level of government transfers. Since, in the basic model, the welfare costs of inflation derive only from expected inflation, the optimal monetary policy is highly responsive to the state of nature. In a benchmark case in which all shocks are transitory, the optimal policy calls for loading all the variability of government transfers on the shoulders of the inflation tax.