Quasi-monetary and quasi-fiscal policy rules at the zero-lower bound

Guay Lim and Paul McNelis ()

Journal of International Money and Finance, 2016, vol. 69, issue C, 135-150

Abstract: This paper assesses adjustments at the zero lower bound (ZLB) in an economy incorporating financial frictions and nominal price stickiness. We examine the dynamic paths of key variables under recurring real (productivity) and financial (net worth) shocks under three alternative policy scenarios: removal of the zero lower bound (to allow for negative rates), quantitative easing policies at the ZLB, and the use of endogenous tax-rates rules for consumption and labor income at the ZLB. The results show that the fiscal tax-rate rules (acting like a quasi-monetary policy with direct effects on consumption) can be as effective as quantitative easing (a quasi-fiscal policy with indirect effects on investment) in times of prolonged crises due to recurring negative shocks.

Keywords: Zero lower bound; Quantitative easing; Tax rules (search for similar items in EconPapers)
JEL-codes: E42 E52 E62 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:69:y:2016:i:c:p:135-150

DOI: 10.1016/j.jimonfin.2016.06.007

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