Inflation Targeting or Fiscal Activism?

Roberto Billi

No 412, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: I study the welfare performance of a policy regime of fiscal activism in which fiscal policy acts as an automatic stabilizer and controls inflation, while monetary policy pegs the nominal interest rate. When evaluated through the lens of a standard New Keynesian model, accounting for price and wage rigidities and for a zero lower bound (ZLB) on the nominal interest rate, fiscal activism can substantially outperform inflation targeting in the face of both demand shocks and technology shocks. Fiscal activism can also eliminate the occurrence of ZLB episodes.

Keywords: automatic stabilizers; Öscal and monetary interactions; government debt (search for similar items in EconPapers)
JEL-codes: E24 E31 E52 E63 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2022-03-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0412

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