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.
Monetary-fiscal interactions under price level targeting / G. Ascari, A. Florio, A.P. Gobbi. - (2020).
|Titolo:||Monetary-fiscal interactions under price level targeting|
|Parole Chiave:||Price level targeting; monetary and fiscal policy interactions|
|Settore Scientifico Disciplinare:||Settore SECS-P/01 - Economia Politica|
|Data di pubblicazione:||2020|
|Appare nelle tipologie:||24 - Pre-print|