TY  - UNPD
A1  - Burgert, Matthias
A1  - Schmidt, Sebastian
T1  - Dealing with a liquidity trap when government debt matters: optimal time-consistent monetary and fiscal policy
T2  - Working paper series / Institute for Monetary and Financial Stability ; 72
N2  - 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. 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.
T3  - Working paper series / Institute for Monetary and Financial Stability - 72 
KW  - Monetary Policy
KW  - Fiscal Policy
KW  - Deficit spending
KW  - Discretion
KW  - Zero nominal interest rate bound
KW  - New Keynesian model
Y1  - 2013
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/31481
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-314810
UR  - http://www.imfs-frankfurt.de/fileadmin/user_upload/pdf/WP_72.pdf
SP  - 1
EP  - 32
PB  - Johann Wolfgang Goethe-Univ., Inst. for Monetary and Financial Stability
CY  - Frankfurt am Main
ER  -