NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Unconventional Fiscal Policy at the Zero Bound

Isabel Correia, Emmanuel Farhi, Juan Pablo Nicolini, Pedro Teles

NBER Working Paper No. 16758
Issued in February 2011
NBER Program(s):   EFG   ME

When the zero lower bound on nominal interest rates binds, monetary policy cannot provide appropriate stimulus. We show that in the standard New Keynesian model, tax policy can deliver such stimulus at no cost and in a time-consistent manner. There is no need to use inefficient policies such as wasteful public spending or future commitments to inflate. We conclude that in the New Keynesian model, the zero bound on nominal interest rates is not a relevant constraint on both fiscal and monetary policy.

download in pdf format
   (263 K)

email paper

This paper is available as PDF (263 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16758

Published: Isabel Correia & Emmanuel Farhi & Juan Pablo Nicolini & Pedro Teles, 2013. "Unconventional Fiscal Policy at the Zero Bound," American Economic Review, American Economic Association, vol. 103(4), pages 1172-1211, June.

Users who downloaded this paper also downloaded these:
Auerbach and Gorodnichenko w16311 Measuring the Output Responses to Fiscal Policy
Werning w17344 Managing a Liquidity Trap: Monetary and Fiscal Policy
Mishkin w16755 Monetary Policy Strategy: Lessons from the Crisis
Drautzburg and Uhlig w17111 Fiscal Stimulus and Distortionary Taxation
Feyrer and Sacerdote w16759 Did the Stimulus Stimulate? Real Time Estimates of the Effects of the American Recovery and Reinvestment Act
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us