Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/262363 
Year of Publication: 
2022
Series/Report no.: 
DIW Discussion Papers No. 1953
Version Description: 
This Version: August 10, 2022
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
We show that in a New Keynesian model with household heterogeneity, fiscal policy can be a perfect substitute for monetary policy: three simple conditions for consumption taxes, labor taxes, and the government debt level are sufficient to induce the same consumption and labor supply of each household and, thus, the same allocation as interest rate policies. When monetary policy is constrained by a binding lower bound, a currency union, or an exchange rate peg, fiscal policy can therefore replicate any allocation that hypothetically unconstrained monetary policy would generate.
Subjects: 
Unconventional Fiscal Policy
Heterogeneous Agents
Incomplete Markets
Liquidity Trap
Sticky Prices
JEL: 
E12
E21
E24
E43
E52
Document Type: 
Working Paper

Files in This Item:
File
Size
814.02 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.