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Quasi-monetary and quasi-fiscal policy rules at the zero-lower bound

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  • Lim, G.C.
  • McNelis, Paul D.

Abstract

This paper assesses adjustments at the zero lower bound (ZLB) in an economy incorporating financial frictions and nominal price stickiness. We examine the dynamic paths of key variables under recurring real (productivity) and financial (net worth) shocks under three alternative policy scenarios: removal of the zero lower bound (to allow for negative rates), quantitative easing policies at the ZLB, and the use of endogenous tax-rates rules for consumption and labor income at the ZLB. The results show that the fiscal tax-rate rules (acting like a quasi-monetary policy with direct effects on consumption) can be as effective as quantitative easing (a quasi-fiscal policy with indirect effects on investment) in times of prolonged crises due to recurring negative shocks.

Suggested Citation

  • Lim, G.C. & McNelis, Paul D., 2016. "Quasi-monetary and quasi-fiscal policy rules at the zero-lower bound," Journal of International Money and Finance, Elsevier, vol. 69(C), pages 135-150.
    • Handle: RePEc:eee:jimfin:v:69:y:2016:i:c:p:135-150
    DOI: 10.1016/j.jimonfin.2016.06.007
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    Cited by:

    1. Melina, Giovanni & Villa, Stefania, 2023. "Drivers of large recessions and monetary policy responses," Journal of International Money and Finance, Elsevier, vol. 137(C).
    2. McNelis, Paul D., 2016. "Optimal policy rules at home, crisis and quantitative easing abroad," BOFIT Discussion Papers 15/2016, Bank of Finland Institute for Emerging Economies (BOFIT).
    3. McNelis, Paul D., 2016. "Optimal policy rules at home, crisis and quantitative easing abroad," BOFIT Discussion Papers 15/2016, Bank of Finland, Institute for Economies in Transition.
    4. Lai, Jennifer & Chen, Hongyi & McNelis, Paul D., 2020. "Macroeconomic adjustment with managed exchange rates and capital controls: Some lessons from China," Economic Modelling, Elsevier, vol. 91(C), pages 759-768.
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    6. Jia Li & Rachel Tochen & Yaning Dong & Zhuoran Ren, 2022. "Debt-Driven Property Boom, Land-Based Financing and Trends of Housing Financialization: Evidence from China," Land, MDPI, vol. 11(11), pages 1-23, November.
    7. McNelis, Paul D. & Yoshino, Naoyuki, 2016. "Finding stability in a time of prolonged crisis: Unconventional policy rules for Japan," Journal of Financial Stability, Elsevier, vol. 27(C), pages 122-136.

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    More about this item

    Keywords

    Zero lower bound; Quantitative easing; Tax rules;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • 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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