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 ine¢ cient policies such as wasteful public spending or future commitments to in‡ate. We conclude that in the New Keynesian model,...

Monetary and …scal policies interact in many ways. Recently, the stance of …scal policy in a number of countries (including the EU and US) has raised concerns about risks for the outcomes of monetary policy. Our paper …rst shows that these concerns are justi…ed since under an ‘ambitious’…scal policymaker in‡ation bias and lack of monetary policy credibility may obtain in equilibrium even if the...

The paper shows that common fiscal rules, such as a limit to the deficit-output ratio, induce an ‘‘escape clause’’–type fiscal policy, similar to that studied for monetary policy by Flood and Isard (1988 and 1989) and Lohmann (1992): The government resorts to an active stabilization (for example, countercyclical) policy only during ‘‘exceptional times’’ by running deficits in recession phases a...

India’s expansionary fiscal policy during the recent crisis resulted in higher government borrowing through 2008–09 and 2009–10. This borrowing requirement came in about 83% above the budget estimate in 2008–09, and 65% above the previous year in 2009–10. The debt-to-GDP ratio rose from 69% before the recent global financial crisis to 73% in 2010, creating a severe challenge for the Reserve Ban...

Both monetary and fiscal instruments have been continuously and rather systematically used in Swedish stabilization policy during the entire postwar period. The policy has relied mainly on rather conventional "Keynesian" tools of fiscal and monetary policy: variations in public spending and taxation, interest rate variations, and attempts to influence the supply of credit and money. It may be o...

Using an estimated DSGE model that features monetary and fiscal policy interactions and allows for equilibrium indeterminacy, we find that a passive monetary and passive fiscal policy regime prevailed in the pre-Volcker period while an active monetary and passive fiscal policy regime prevailed post-Volcker. Since both monetary and fiscal policies were passive pre-Volcker, there was equilibrium ...

We investigate the effects of fiscal policy surprises for US data, using vector autoregressions. We overcome the difficulties that changes in fiscal policy may manifest themselves in variables other than fiscal variables first and that fiscal variables may respond ”automatically” to business cycle conditions. We do so by using sign restrictions on the impulse responses as method of identificati...

We postulate a new method of measuring debt which we call the debt burden (DB). We claim that DB reveals the true debt obligations of the fiscal authority by taking the intertemporal debt obligations of the government into account. It is more accurate and more transparent than the currently used methods of assessing debt. DB is calculated on a daily basis and it clearly identifies debt risks. I...