Unconventional fiscal policy at the zero bound

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

Research output: Contribution to journalReview articlepeer-review

111 Citations (Scopus)
21 Downloads

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 low interest rates.
Original languageEnglish
Pages (from-to)1172-1211
Number of pages40
JournalAmerican Economic Review
Volume103
Issue number4
DOIs
Publication statusPublished - Jun 2013

Keywords

  • Zero bound
  • Fiscal policy
  • Monetary policy
  • Sticky price

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