Fiscal Stimulus of Last Resort

Alessandro Piergallini

Journal of Money, Credit and Banking, 2024, vol. 56, issue 6, 1479-1514

Abstract: I examine global dynamics in a monetary model with overlapping generations of finite‐horizon agents, nonseparable preferences over consumption and real money balances, and a binding lower bound on nominal interest rates. Debt targeting rules exacerbate the possibility of self‐fulfilling liquidity traps, for agents expect austerity following deflationary slumps. Conversely, activist but sustainable fiscal policy regimes—implementing intertemporally balanced tax cuts and/or transfer increases in response to disinflationary trajectories—are capable of escaping liquidity traps and embarking inflation into a globally stable path that converges to the target. Should fiscal stimulus of last resort be overly aggressive, however, spiral dynamics around the liquidity‐trap steady state exist, causing global indeterminacy.

Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/jmcb.13014

Related works:
Working Paper: Fiscal Stimulus of Last Resort (2021)
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:wly:jmoncb:v:56:y:2024:i:6:p:1479-1514

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley Content Delivery ().