long run. In particular, we show that if monetary policy reacts aggressively to inflation, this supports a steady state … where inflation is close to the central bank's target. However, the same aggressive policy simultaneously favours the … inflation are lower and monetary policy is constrained by the effective lower bound. We discuss how fiscal policy can be used to …

We consider the fiscal multiplier and spillover in an environment in which two countries are caught simultaneously in a … show that the fiscal multiplier and spillover are contrary to those predicted in textbook economics. For the country with … government expenditure, the fiscal multiplier exceeds one, the currency depreciates, and the terms of trade worsen. The fiscal …

multiplier nontrivially when the policy rate is constrained at the zero lower bound (ZLB). In the economy with policy inertia …, increased inflation and output due to higher government spending during a recession speed up the return of the policy rate to … the recession via expectations. In our baseline calibration, the output multiplier at the ZLB is 2.5 when the weight on …

We develop a theoretical framework to account for the observed instability of the link between inflation and fiscal … bank that has full control over inflation. When policy makers deviate from this Virtuous regime, agents conduct Bayesian … pessimistic about a prompt return to the Virtuous regime and inflation starts drifting in response to a fiscal imbalance. Shocks …

purchases, affect inflation. The effect of large-scale asset purchases on inflation is found to be much smaller than the other …

expectations that helps to dampen the fall in output and inflation at the outset of the liquidity trap. …

States. While unexpected inflation reduces the real value ofgovernment liabilities, a rising policy rate increases government …