Interest Rate Cuts vs. Stimulus Payments: An Equivalence Result

Christian Wolf

No 29193, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In a textbook New Keynesian model extended to allow for uninsurable household income risk, any path of inflation and output implementable via interest rate policy is similarly implementable through uniform lump-sum transfers ("stimulus checks"). A dual-mandate policymaker can thus use checks to perfectly substitute for conventional monetary policy when rates are constrained by a lower bound. In a quantitative heterogeneous-agent (HANK) model, the stimulus check policy that implements a given monetary allocation is well-characterized by a small number of measurable sufficient statistics. In the household cross-section, the transfer policy is associated with lower consumption inequality than the equivalent rate cut.

JEL-codes: E2 E3 E6 (search for similar items in EconPapers)
Date: 2021-08
New Economics Papers: this item is included in nep-cba, nep-dge, nep-isf, nep-mac and nep-mon
Note: EFG ME
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