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Should the Fiscal Authority Avoid Implementation Lag?

Author

Listed:
  • Masataka Eguchi
  • Hidekazu Niwa
  • Takayuki Tsuruga

Abstract

Implementation lags are a concern of policymakers as they may reduce the efficacy of fiscal policy. Using a standard New Keynesian model with an effective lower bound on the nominal interest rate, we compare the impacts of fiscal stimulus on output across various lengths of implementation lag. We show that despite concerns among policymakers, implementation lags may enhance the efficacy of government purchases on output when the economy is caught in a liquidity trap.

Suggested Citation

  • Masataka Eguchi & Hidekazu Niwa & Takayuki Tsuruga, 2024. "Should the Fiscal Authority Avoid Implementation Lag?," CAMA Working Papers 2024-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2024-02
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2024-01/02_eguchi_niwa_tsuruga.pdf
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    Keywords

    fiscal multiplier; effective lower bound; government spending; liquidity trap;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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