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American Economic Review: Vol. 103 No. 4 (June 2013)

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Unconventional Fiscal Policy at the Zero Bound

Article Citation

Correia, Isabel, Emmanuel Farhi, Juan Pablo Nicolini, and Pedro Teles. 2013. "Unconventional Fiscal Policy at the Zero Bound." American Economic Review, 103(4): 1172-1211.

DOI: 10.1257/aer.103.4.1172

Abstract

When the zero lower bound on nominal interest rates binds, monetary policy cannot provide appropriate stimulus. We show that, in the standard New Keynesian model, tax policy can deliver such stimulus at no cost and in a time-consistent manner. There is no need to use inefficient policies such as wasteful public spending or future commitments to low interest rates.

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Authors

Correia, Isabel (Bank of Portugal and Catholic U Portugal)
Farhi, Emmanuel (Harvard U)
Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis and Torcuato Di Tella U)
Teles, Pedro (Bank of Portugal and Catholic U Portugal)

JEL Classifications

E12: General Aggregative Models: Keynes; Keynesian; Post-Keynesian
E43: Interest Rates: Determination, Term Structure, and Effects
E52: Monetary Policy
E62: Fiscal Policy
H20: Taxation, Subsidies, and Revenue: General


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