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28 octobre 2020
- 2010.14979
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Economics - General EconomicsSujets proches
Economic theory Political economyCiter ce document
Guido Ascari et al., « Monetary-fiscal interactions under price level targeting », arXiv - économie
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Résumé
The adoption of a "makeup" strategy is one of the proposals in the ongoing review of the Fed's monetary policy framework. Another suggestion, to avoid the zero lower bound, is a more active role for fiscal policy. We put together these ideas to study monetary-fiscal interactions under price level targeting. Under price level targeting and a fiscally-led regime, we find that following a deflationary demand shock: (i) the central bank increases (rather than decreases) the policy rate; (ii) the central bank, thus, avoids the zero lower bound; (iii) price level targeting is generally welfare improving if compared to inflation targeting.