Money-financed fiscal stimulus: The effects of implementation lag

Arbeitspapier

Previous studies argue that, based on the New Keynesian framework, a fiscal stimulus financed by money creation has a strong positive effect on output under a reasonable degree of nominal price rigidities. This paper investigates the effects of implementation lag in the moneyfinanced fiscal stimulus on output. We show that if a money-financed government purchase has a time lag between the decision and the implementation: (1) it may cause a recession rather than a boom when the economy is in normal times; (2) it may deepen a recession when the economy is caught in a liquidity trap; (3) the longer is the implementation lag, the deeper is the recession; and (4) the depth of the recession depends on the interest semi-elasticity of money demand. Our results imply that to strengthen the efficacy of the money-financed fiscal stimulus, policymakers should shorten the implementation lag based on detailed knowledge of the money demand function.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ISER Discussion Paper ; No. 1038

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Monetary Policy ; Fiscal Policy
• Subject: Anticipation effect ; Fiscal multiplier ; Government spending ; Seigniorage

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Tsuruga, Takayuki ; Wake, Shota
• Event: Veröffentlichung
• (who): Osaka University, Institute of Social and Economic Research (ISER)
• (where): Osaka
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/197710
• Last update: 10.03.2025, 11:44 AM CET