Optimal monetary and fiscal policy with a zero bound on nominal interest rates

Sebastian Schmidt

No 53, IMFS Working Paper Series from Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)

Abstract: I characterize optimal monetary and fiscal policy in a stochastic New Keynesian model when nominal interest rates may occasionally hit the zero lower bound. The benevolent policymaker controls the short-term nominal interest rate and the level of government spending. Under discretionary policy, accounting for fiscal stabilization policy eliminates to a large extent the welfare losses associated with the presence of the zero bound. Under commitment, the gains associated with the use of the fiscal policy tool remain modest, even though fiscal stabilization policy is part of the optimal policy mix.

Keywords: Monetary policy; Fiscal policy; Discretion; Commitment; Zero nominal interest rate bound; New Keynesian model (search for similar items in EconPapers)
JEL-codes: E31 E52 E62 E63 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Related works:
Journal Article: Optimal Monetary and Fiscal Policy with a Zero Bound on Nominal Interest Rates (2013)
Journal Article: Optimal Monetary and Fiscal Policy with a Zero Bound on Nominal Interest Rates (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:imfswp:53

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