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The Effects of a Money-Financed Fiscal Stimulus

Jordi Gali ()

No 26249, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: I analyze the effects of a money-financed fiscal stimulus and compare them with those resulting from a conventional debt-financed stimulus. I study the effects of both a tax cut and an increase in government purchases, with and without a binding zero lower bound (ZLB) on the nominal interest rate. When the ZLB is not binding, a money-financed fiscal stimulus is shown to have much larger multipliers than a debt-financed fiscal stimulus. That difference in effectiveness persists, but is much smaller, under a binding ZLB. Nominal rigidities are shown to play a major role in shaping those effects

JEL-codes: E32 E52 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2019-09
Note: EFG ME
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Published as Jordi Galí, 2019. "The effects of a money-financed fiscal stimulus," Journal of Monetary Economics, .

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