Optimal Monetary and Fiscal Policy with a Zero Bound on Nominal Interest Rates

Material TypeArticleLanguageEnglish
TitleOptimal Monetary and Fiscal Policy with a Zero Bound on Nominal Interest Rates Author(S)SEBASTIAN SCHMIDT (Author)
Abstract  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. ...Paginationp 1335-1350
SubjectEconomicsDescriptorsFiscal policy Monetary policy Interest
Journal TitleJournal of Money, Credit, and Banking  
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