Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/197710
Authors: 
Tsuruga, Takayuki
Wake, Shota
Year of Publication: 
2018
Series/Report no.: 
ISER Discussion Paper No. 1038
Abstract: 
Previous studies argue that, based on the New Keynesian framework, a fiscal stimulus financed by money creation has a strong positive effect on output under a reasonable degree of nominal price rigidities. This paper investigates the effects of implementation lag in the moneyfinanced fiscal stimulus on output. We show that if a money-financed government purchase has a time lag between the decision and the implementation: (1) it may cause a recession rather than a boom when the economy is in normal times; (2) it may deepen a recession when the economy is caught in a liquidity trap; (3) the longer is the implementation lag, the deeper is the recession; and (4) the depth of the recession depends on the interest semi-elasticity of money demand. Our results imply that to strengthen the efficacy of the money-financed fiscal stimulus, policymakers should shorten the implementation lag based on detailed knowledge of the money demand function.
Subjects: 
Anticipation effect
Fiscal multiplier
Government spending
Seigniorage
JEL: 
E32
E52
E62
Document Type: 
Working Paper

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