Fiscal Policy and the Inflation Target

Peter Tulip

International Journal of Central Banking, 2014, vol. 10, issue 2, 63-96

Abstract: Low interest rates in the United States have recently been accompanied by large fiscal stimulus. However, discussions of monetary policy have neglected this fiscal activism, leading to overestimates of the costs of the zero lower bound and, hence, of the appropriate inflation target. To rectify this, I include countercyclical fiscal policy within a large-scale model of the U.S. economy. I find that fiscal activism can substitute for a high inflation target. If fiscal policy behaves as it has recently, then an increase in the inflation target is not warranted, despite increased volatility of macroeconomic shocks.

JEL-codes: E52 E62 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (8)

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Working Paper: Fiscal Policy and the Inflation Target (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2014:q:2:a:3

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