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The Redistributive Effects of a Money-Financed Fiscal Stimulus

Chiara Punzo () and Lorenza Rossi ()

No 168, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: This paper analyzes the redistributive channel of a money fi?nanced fiscal stimulus (MFFS). It shows that the way in which this regime is implemented is crucial to determine its redistributive effects and consequently its effectiveness. In normal times, the most effective regime is a MFFS with no additional intervention by the Central Bank to stabilize the real public debt using in?fation, whereas a MFFS accompanied by real debt stabilization - through the adjustment of seigniorage - is the most effective one in a ZLB scenario. In a TANK model this regime is so effective to avoid the recessionary effects implied by the ZLB. This result does not hold in a RANK model, where the redistributive channel is absent. Remarkably, contrary to the common wisdom a MFFS is followed by a moderate increase of infl?ation, which is only temporarily higher than the target.

New Economics Papers: this item is included in nep-cba and nep-dge
Date: 2019-01
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