Quantitative Easing in Joseph's Egypt with Keynesian Producers

This paper considers monetary and fiscal policy when tangible assets can be created and stored after shocks that increase desired savings, like Joseph's biblical prophecy of seven fat years followed by seven lean years. The model's flexible-price allocation mimics Joseph's saving to smooth consumption. With nominal rigidities, monetary policy that eliminates liquidity traps leaves the economy vulnerable to confidence recessions with low consumption and investment. Josephean Quantitative Easing, a fiscal policy that purchases either obligations collateralized by reproducible tangible assets or the assets themselves, eliminates both liquidity traps and confidence recessions by putting a floor under future consumption. This requires no commitment to a time-inconsistent plan. In a small open economy, the monetary authority can implement Josephean Quantitative Easing with a sterilized currency-market intervention that accumulates foreign reserves. This can improve outcomes even if it leaves nominal exchange rates unchanged.