Fiscal Stimulus Under Average Inflation Targeting

Zheng Liu, Jianjun Miao and Dongling Su ()

No 2022-22, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: The stimulus effects of expansionary fiscal policy under average inflation targeting (AIT) depends on both monetary and fiscal policy regimes. AIT features an inflation makeup under the monetary regime, but not under the fiscal regime. In normal times, AIT amplifies the short-run fiscal multipliers under both regimes while mitigating the cumulative multiplies due to intertemporal substitution. In a zero-lower-bound (ZLB) period, AIT reduces fiscal multipliers under a monetary regime by shortening the duration of the ZLB through expected inflation makeup. Under the fiscal regime, AIT has a nonlinear effect on fiscal multipliers because of the absence of inflation makeup and the presence of a nominal wealth effect.

Keywords: average inflation targeting; fiscal multipliers; monetary policy rules; fiscal policy; DSGE models (search for similar items in EconPapers)
JEL-codes: E13 E32 E44 E52 G12 (search for similar items in EconPapers)
Pages: 48
Date: 2022-11-09
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.frbsf.org/wp-content/uploads/sites/4/wp2022-22.pdf Full text - article PDF (application/pdf)

Related works:
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:fip:fedfwp:95010

Ordering information: This working paper can be ordered from

DOI: 10.24148/wp2022-22

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of San Francisco Contact information at EDIRC.
Bibliographic data for series maintained by Federal Reserve Bank of San Francisco Research Library ().