Advanced Search
MyIDEAS: Login

Unconventional Fiscal Policy at the Zero Bound

Contents:

Author Info

  • Correia, Isabel
  • Farhi, Emmanuel
  • Nicolini, Juan Pablo
  • Teles, Pedro

Abstract

When the zero lower bound on nominal interest rates binds, monetary policy cannot provide appropriate stimulus. We show that in the standard New Keynesian model, tax policy can deliver such stimulus at no cost and in a time-consistent manner. There is no need to use inefficient policies such as wasteful public spending or future commitments to inflate. We conclude that in the New Keynesian model, the zero bound on nominal interest rates is not a relevant constraint on both fiscal and monetary policy.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cepr.org/pubs/dps/DP8193.asp
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8193.

as in new window
Length:
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:cpr:ceprdp:8193

Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information:
Email:

Related research

Keywords: Fiscal policy; Monetary Policy; Sticky Prices; Zero Bound;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. V.V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1991. "Optimal fiscal and monetary policy: some recent results," Proceedings, Federal Reserve Bank of Cleveland, pages 519-546.
  2. Gauti B. Eggertsson & Michael Woodford, 2004. "Optimal Monetary and Fiscal Policy in a Liquidity Trap," NBER Working Papers 10840, National Bureau of Economic Research, Inc.
  3. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
  4. Tack Yun, 2005. "Optimal Monetary Policy with Relative Price Distortions," American Economic Review, American Economic Association, vol. 95(1), pages 89-109, March.
  5. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
  6. Correia, Maria Isabel Horta & Nicolini, Juan Pablo & Teles, Pedro, 2003. "Optimal Fiscal and Monetary Policy: Equivalence Results," CEPR Discussion Papers 3730, C.E.P.R. Discussion Papers.
  7. Gauti B. Eggertsson, 2011. "What Fiscal Policy is Effective at Zero Interest Rates?," NBER Chapters, in: NBER Macroeconomics Annual 2010, Volume 25, pages 59-112 National Bureau of Economic Research, Inc.
  8. Bernheim, B Douglas, 1991. "Optimal Fiscal and Monetary Policy: Some Recent Results," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 540-42, August.
  9. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2009. "When is the government spending multiplier large?," NBER Working Papers 15394, National Bureau of Economic Research, Inc.
  10. Olivier Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, 09.
  11. Gauti B. Eggertsson & Michael Woodford, 2004. "Policy Options in a Liquidity Trap," American Economic Review, American Economic Association, vol. 94(2), pages 76-79, May.
  12. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
  13. De Long, James Bradford & Summers, Lawrence H, 1986. "Is Increased Price Flexibility Stabilizing?," American Economic Review, American Economic Association, vol. 76(5), pages 1031-44, December.
  14. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
  15. Mertens, Karel & Ravn, Morten O., 2010. "Fiscal Policy in an Expectations Driven Liquidity Trap," CEPR Discussion Papers 7931, C.E.P.R. Discussion Papers.
  16. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  17. Bernardino Adao & Isabel Correia & Pedro Teles, 2011. "Unique Monetary Equilibria with Interest Rate Rules," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(3), pages 432-442, July.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Liquidity Constraints
    by Stephen Williamson in Stephen Williamson: New Monetarist Economics on 2013-11-21 22:57:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Emmanuel Farhi & Gita Gopinath & Oleg Itskhoki, 2011. "Fiscal Devaluations," NBER Working Papers 17662, National Bureau of Economic Research, Inc.
  2. Jha, Shikha & Mallick, Sushanta K. & Park, Donghyun & Quising, Pilipinas F., 2014. "Effectiveness of countercyclical fiscal policy: Evidence from developing Asia," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 82-98.
  3. Anton Korinek & Alp Simsek, 2014. "Liquidity Trap and Excessive Leverage," NBER Working Papers 19970, National Bureau of Economic Research, Inc.
  4. Thorsten Drautzburg & Harald Uhlig, 2011. "Fiscal Stimulus and Distortionary Taxation," NBER Working Papers 17111, National Bureau of Economic Research, Inc.
  5. N. Gregory Mankiw & Matthew weinzierl, 2011. "An Exploration of Optimal Stabilization Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 209-272.
  6. Matthew Denes & Gauti B. Eggertsson & Sophia Gilbukh, 2012. "Deficits, public debt dynamics, and tax and spending multipliers," Staff Reports 551, Federal Reserve Bank of New York.
  7. Gauti Eggertsson & Andrea Ferrero & Andrea Raffo, 2013. "Can structural reforms help Europe?," International Finance Discussion Papers 1092, Board of Governors of the Federal Reserve System (U.S.).
  8. Virkola, Tuomo, 2014. "Exchange Rate Regime, Fiscal Foresight and the Effectiveness of Fiscal Policy in a Small Open Economy," ETLA Reports 20, The Research Institute of the Finnish Economy.
  9. Luiz de Mello, 2013. "What Can Fiscal Policy Do in the Current Recession? A Review of Recent Literature and Policy Options," Hacienda Pública Española, IEF, vol. 204(1), pages 113-139, March.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:8193. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.