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The Effects of a Money-Financed Fiscal Stimulus

Jordi Galí

NBER Working Paper No. 26249
Issued in September 2019
NBER Program(s):Economic Fluctuations and Growth Program, Monetary Economics Program

I analyze the effects of a money-financed fiscal stimulus and compare them with those resulting from a conventional debt-financed stimulus. I study the effects of both a tax cut and an increase in government purchases, with and without a binding zero lower bound (ZLB) on the nominal interest rate. When the ZLB is not binding, a money-financed fiscal stimulus is shown to have much larger multipliers than a debt-financed fiscal stimulus. That difference in effectiveness persists, but is much smaller, under a binding ZLB. Nominal rigidities are shown to play a major role in shaping those effects

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Document Object Identifier (DOI): 10.3386/w26249

Published: Jordi Galí, 2019. "The effects of a money-financed fiscal stimulus," Journal of Monetary Economics, .

 
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