Unconventional fiscal policy in HANK

Arbeitspapier

We show that in a New Keynesian model with household heterogeneity, fiscal policy can be a perfect substitute for monetary policy: three simple conditions for consumption taxes, labor taxes, and the government debt level are sufficient to induce the same consumption and labor supply of each household and, thus, the same allocation as interest rate policies. When monetary policy is constrained by a binding lower bound, a currency union, or an exchange rate peg, fiscal policy can therefore replicate any allocation that hypothetically unconstrained monetary policy would generate.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: DIW Discussion Papers ; No. 1953

Classification and Topics

• Classification: Wirtschaft ; General Aggregative Models: Keynes; Keynesian; Post-Keynesian ; Macroeconomics: Consumption; Saving; Wealth ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Interest Rates: Determination, Term Structure, and Effects ; Monetary Policy
• Subject: Unconventional Fiscal Policy ; Heterogeneous Agents ; Incomplete Markets ; Liquidity Trap ; Sticky Prices

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Seidl, Hannah ; Seyrich, Fabian
• Event: Veröffentlichung
• (who): Deutsches Institut für Wirtschaftsforschung (DIW)
• (where): Berlin
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/262363
• Last update: 10.03.2025, 11:43 AM CET