Fiscal activism and the zero nominal interest rate bound

Sebastian Schmidt

No 1653, Working Paper Series from European Central Bank

Abstract: I show that the zero nominal interest rate bound may render it desirable for society to appoint a fiscally activist policy-maker who cares less about the stabilisation of government spending relative to inflation and output gap stabilisation than the private sector does. I work with a simple New Keynesian model where the government has to decide each period afresh about the optimal level of public consumption and the one period nominal interest rate. A fiscally activist policy-maker uses government spending more aggressively to stabilise inflation and the output gap in a liquidity trap than an authority with preferences identical to those of society as a whole would do. The appointment of an activist policy-maker corrects for discretionary authorities JEL Classification: E52, E62, E63

Keywords: discretion; fiscal policy; monetary policy; zero nominal interest rate bound (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-pbe
Note: 2179645
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Fiscal Activism and the Zero Nominal Interest Rate Bound (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20141653

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