Optimal fiscal and monetary policy with occasionally binding zero bound constraints

Taisuke Nakata

No 2013-40, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper studies optimal government spending and monetary policy when the nominal interest rate is subject to the zero lower bound constraint in a stochastic New Keynesian economy. I find that the government chooses to increase its spending when at the zero lower bound by a substantially larger amount in the stochastic environment than it would in the deterministic environment. The presence of uncertainty creates a unique time-consistency problem if the steady-state is inefficient. Although access to government spending policy increases welfare in the face of a large deflationary shock, it decreases welfare during normal times as the government reduces the nominal interest rate less aggressively before reaching the zero lower bound

Date: 2013
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/2013/201340/201340abs.html (text/html)
http://www.federalreserve.gov/pubs/feds/2013/201340/201340pap.pdf (application/pdf)

Related works:
Journal Article: Optimal fiscal and monetary policy with occasionally binding zero bound constraints (2016)
Working Paper: Optimal Fiscal and Monetary Policy with Occasionally Binding Zero Bound Constraints (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2013-40

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier (ryan.d.wolfslayer@frb.gov).