The dire effects of the lack of monetary and fiscal coordination

• 成果类型: Article
• 署名作者: Bianchi, Francesco; Melosi, Leonardo
• 署名单位: Center for Economic & Policy Research (CEPR); Duke University; National Bureau of Economic Research; Federal Reserve System - USA; Federal Reserve Bank - Chicago; European University Institute
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2018.09.001
• 发表日期: 2019
• 页码: 1-22
• 关键词: Monetary and fiscal policies; COORDINATION; Emergency budget; Markov-switching models; Liquidity traps welfare; uncertainty

摘要

If the government's willingness to stabilize debt is waning, while the central bank is adamant about keeping inflation low, the economy enters a vicious spiral of higher inflation, monetary tightening, recession, and further debt accumulation. The mere possibility of this conflict represents a drag on the economy. A commitment to inflate away the debt accumulated during a large recession leads to welfare improvements and lower uncertainty by separating long-run fiscal sustainability from the short-run fiscal stimulus. This strategy can be used to avoid the zero lower bound. As a technical contribution, we explain how to build shock-specific policy rules. (C) 2018 Elsevier B.V. All rights reserved.