Unconventional Fiscal Policy at the Zero Bound

Isabel Correia (), Pedro Teles, Juan Pablo Nicolini and Emmanuel Farhi

No 8193, CEPR Discussion Papers from Centre for Economic Policy Research

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 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.

Keywords: Fiscal policy; Monetary policy; Sticky prices; Zero bound (search for similar items in EconPapers)
JEL-codes: E31 E40 E52 E58 E62 E63 (search for similar items in EconPapers)
Date: 2011-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Unconventional Fiscal Policy at the Zero Bound (2013)
Working Paper: Unconventional fiscal policy at the zero bound (2012)
Working Paper: Unconventional Fiscal Policy at the Zero Bound (2011)
Working Paper: Unconventional Fiscal Policy at the Zero Bound (2011)
Working Paper: Unconventional Fiscal Policy at the Zero Bound
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