Unconventional Fiscal Policy at the Zero Bound
Maria Isabel Horta Correia
Bank of Portugal - Economic Research Department
Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
Juan Pablo Nicolini
Universitat Pompeu Fabra
Federal Reserve Bank of Chicago; Centre for Economic Policy Research (CEPR)
CEPR Discussion Paper No. DP8193
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.
Number of Pages in PDF File: 31
Keywords: Fiscal policy, Monetary Policy, Sticky Prices, Zero Bound;
JEL Classification: E31, E40, E52, E58, E62, E63working papers series
Date posted: January 31, 2011
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo4 in 1.094 seconds