Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212429 
Authors: 
Year of Publication: 
2018
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 21/2018
Publisher: 
Bank of Finland, Helsinki
Abstract: 
Standard New Keynesian models predict implausibly large and favorable responses of inflation and output to expansionary forward guidance on interest rates. We find that the introduction of permanent or recurring active fiscal policy dampens the response of output and inflation to forward guidance in the New Keynesian model. Moreover, the presence of regime-switching policy introduces expectation e ects that cause forward guidance to be less stimulative in our regime-switching model's active money, passive fiscal policy regime. Finally, the introduction of long-term debt a ects the magnitude of the stimulus resulting from forward guidance in models with active fiscal policy.
JEL: 
E63
D84
E50
E52
E58
E60
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-246-4
Document Type: 
Working Paper

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