The Effects of Negative Interest Rate Policy(Nirp) Expectations on Fiscal Multiplier
Fiscal multipliers decrease nonlinearly as the private sector anticipates a higher likelihood of NIRP in the future. While the on-impact fiscal multiplier at the ZLB is above the unity without any expectation about NIRP in the future, it falls below 1 when the agents expect the economy to switch to the NIRP regime in two quarters on average. This finding explains why the empirical literature does not agree on whether the fiscal multiplier is above the unity under the ZLB. Importantly, this result is not derived from the fact that the fiscal multiplier under pure NIRP is smaller than one. In fact, in the baseline simulation, it is still higher than the unity. This shows that the possibility of NIRP (or, more broadly speaking, many other looser monetary policies) mitigates the size of the fiscal multiplier at the ZLB, and that effect is nontrivial
Year of publication: |
[2023]
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Authors: | Joo, Hyundo |
Publisher: |
[S.l.] : SSRN |
Subject: | Multiplikator | Multiplier | Niedrigzinspolitik | Low-interest-rate policy | Wirkungsanalyse | Impact assessment | DSGE-Modell | DSGE model | Eurozone | Euro area | Finanzpolitik | Fiscal policy | Erwartungsbildung | Expectation formation |
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