Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/272869 
Year of Publication: 
2022
Series/Report no.: 
Sveriges Riksbank Working Paper Series No. 412
Publisher: 
Sveriges Riksbank, Stockholm
Abstract: 
I study the welfare performance of a policy regime of fiscal activism in which fiscal policy acts as an automatic stabilizer and controls inflation, while monetary policy pegs the nominal interest rate. When evaluated through the lens of a standard New Keynesian model, accounting for price and wage rigidities and for a zero lower bound (ZLB) on the nominal interest rate, fiscal activism can substantially outperform inflation targeting in the face of both demand shocks and technology shocks. Fiscal activism can also eliminate the occurrence of ZLB episodes.
Subjects: 
automatic stabilizers
fiscal and monetary interactions
government debt
JEL: 
E24
E31
E52
E63
Document Type: 
Working Paper

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