Dealing with a liquidity trap when government debt matters: optimal time-consistent monetary and fiscal policy ; conference paper

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Authors and Corporations:	Burgert, Matthias (Author), Schmidt, Sebastian (Author)
Title:	Dealing with a liquidity trap when government debt matters: optimal time-consistent monetary and fiscal policy ; conference paper/ Burgert, Matthias; Schmidt, Sebastian
Type of Resource:	E-Book Conference Proceedings
Language:	English
published:	[Kiel, Hamburg] ZBW 2014
Series:	Verein für Socialpolitik: Jahrestagung des Vereins für Socialpolitik 2014 ; C05-V1 Europäische Zentralbank: Working paper series ; 1622
Subjects:	Graue Literatur Konferenzschrift
Source:	Verbunddaten SWB Lizenzfreie Online-Ressourcen

Description
Abstract:	How does the need to preserve government debt sustainability affect the optimal monetary and fiscal policy response to a liquidity trap? To provide an answer, we employ a small stochastic New Keynesian model with a zero bound on nominal interest rates and characterize optimal time-consistent stabilization policies. We focus on two policy tools, the short-term nominal interest rate and debt-financed government spending. The optimal policy response to a liquidity trap critically depends on the prevailing debt burden. In our model, while the optimal amount of government spending is decreasing in the level of outstanding government debt, future monetary policy is becoming more accommodative, triggering a change in private sector expectations that helps to dampen the fall in output and inflation at the outset of the liquidity trap.
Physical Description:	Online-Ressource (35 S.); graph. Darst
Type of Resource:	Systemvoraussetzungen: Acrobat Reader.