Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97736
Authors: 
Schmidt, Sebastian
Year of Publication: 
2012
Series/Report no.: 
IMFS Working Paper Series 53
Abstract: 
I 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.
Subjects: 
Monetary policy
Fiscal policy
Discretion
Commitment
Zero nominal interest rate bound
New Keynesian model
JEL: 
E31
E52
E62
E63
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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