A Simple RBC Model with Money and Income Taxes

Abstract

The empirical Real Business Cycle models started with the pioneer work of Kydland and Prescott (1982). Since then, many work has been done using their approach. This paper is based in this standard real business cycle model to simulate an economy which include stochastic monetary growth (monetary policy) and income taxes (fiscal policy). The results of the simulations are compared with the actual data using the classical metric of standard errors and correlations and, also, with a VAR estimation. The impulse responses of the model with both policies are compared with the corresponding for the data.