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Exit strategies

Ignazio Angeloni (), Ester Faia and Roland Winkler ()

European Economic Review, 2014, vol. 70, issue C, 231-257

Abstract: We study alternative scenarios for exiting the post-crisis fiscal and monetary accommodation using a macromodel where banks choose their capital structure and are subject to runs. Under a Taylor rule, the post-crisis interest rate hits the zero lower bound (ZLB) and remains there for several years. In that condition, pre-announced and fast fiscal consolidations dominate – based on output and inflation performance and bank stability – alternative strategies incorporating various degrees of gradualism and surprise. We also examine an alternative monetary strategy in which the interest rate does not reach the ZLB; the benefits from fiscal consolidation persist but are more nuanced.

Keywords: Exit strategies; Debt consolidation; Fiscal policy; Monetary policy; Bank runs (search for similar items in EconPapers)
JEL-codes: E63 G01 H12 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:70:y:2014:i:c:p:231-257

DOI: 10.1016/j.euroecorev.2014.04.006

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