Stabilization with Fiscal Policy / Narayana R. Kocherlakota.

Format:

Book

Author/Creator:

Kocherlakota, Narayana R.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29226.

NBER working paper series no. w29226

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

I reconsider the long-standing consensus view that macroeconomic stabilization should rely on monetary policy, not fiscal policy. I use an analytically tractable heterogeneous agent New Keynesian (HANK) model that is parameterized so as to admit a bubble in public debt. In this context, I show that it is possible to stabilize either inflation or output in response to aggregate shocks by varying only fiscal policy (that is, lump-sum uniform transfers). In contrast, when the public debt bubble is large, it is impossible to stabilize either inflation or output by varying only interest rates (monetary policy).

Notes:

Print version record

September 2021.