Unconventional Fiscal Policy in HANK

Discussion Papers 1953, 45 S.

Hannah Seidl, Fabian Seyrich

2021

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Abstract

In HANK, we show that fiscal policy is an appropriate macroeconomic stabilization tool at the ZLB. Fiscal policy achieves the same macroeconomic aggregates and the same welfare as hypothetically unconstrained monetary policy by replicating its transmission mechanism. Consumption taxes and labor taxes replicate the effects of monetary policy through the intertemporal substitution channel. Debt-financed lumpsum transfers and a permanent increase in the government debt level replicate the effects of monetary policy through the redistribution channel.



JEL-Classification: E12;E21;E24;E43;E52
Keywords: Unconventional fiscal policy, heterogeneous agents, incomplete markets, liquidity trap, sticky prices

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