Unconventional Fiscal Policy in HANK

Hannah Magdalena Seidl and Fabian Seyrich

No 1953, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We show that in a New Keynesian model with household heterogeneity, fiscal policy can be a perfect substitute for monetary policy: three simple conditions for consumption taxes, labor taxes, and the government debt level are sufficient to induce the same consumption and labor supply of each household and, thus, the same allocation as interest rate policies. When monetary policy is constrained by a binding lower bound, a currency union, or an exchange rate peg, fiscal policy can therefore replicate any allocation that hypothetically unconstrained monetary policy would generate.

Keywords: Unconventional fiscal policy; heterogeneous agents; incomplete markets; liquidity trap; sticky prices (search for similar items in EconPapers)
JEL-codes: E12 E21 E24 E43 E52 (search for similar items in EconPapers)
Pages: 45 p.
Date: 2021
New Economics Papers: this item is included in nep-dge, nep-isf and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_01.c.820236.de/dp1953.pdf (application/pdf)

Related works:
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:diw:diwwpp:dp1953

Access Statistics for this paper

More papers in Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().