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    Money-financed fiscal programs: A cautionary tale

    English, WIlliam B.; Erceg, Christopher J.; Lopez-Salido, David | June 2017
    Abstract
    A number of prominent economists and policymakers have argued that money-financed fiscal programs (helicopter drops) could be efficacious in boosting output and inflation in economies facing persistent economic weakness, very low inflation, and significant fiscal strains. The authors employ a fairly conventional macroeconomic model to explore the possible effects of such policies. While they do find that money-financed fiscal programs, if communicated successfully and seen as credible by the public, could provide significant stimulus, they underscore the risks that would be associated with such a program. These risks include persistently high inflation if the central bank fully adhered to the program; or alternatively, that such a program would be ineffective in providing stimulus if the public doubted the central bank’s commitment to such an extreme strategy. The authors also highlight how more limited forms of monetary and fiscal cooperation – such as a promise by the central bank to be more accommodative than usual in response to fiscal stimulus – may be more credible and easier to communicate, and ultimately more effective in providing economic stimulus
    Citation
    English, WIlliam B.; Erceg, Christopher J.; Lopez-Salido, David. 2017. Money-financed fiscal programs: A cautionary tale. © Brookings India. http://hdl.handle.net/11540/7324.
    Keywords
    International Financial Market
    Multilateral Financial Institutions
    Economic Recession
    Market
    Crisis
    Economic indicators
    Growth models
    Gross domestic product
    Macroeconomics
    Economic forecast
    Financial Stability
    Financial Management System
    Financial Restructuring
    Capital Market Development
    Market Development
    Economics
    Erosion
    International Economics
    Macroeconomic
    Macroeconomic Analysis
    Performance Evaluation
    Impact Evaluation
    Foreign and Domestic Financing
    Business recessions
    Multilateral development banks
    Regulatory reform
    Capital
    Exports
    Economic development projects
    Economic policy
    Economic forecasting
    Show allCollapse
    Citable URI
    http://hdl.handle.net/11540/7324
    Metadata
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    wp31_englishetal_helicopter.pdf (898.7Kb)
    Author
    English, WIlliam B.
    Erceg, Christopher J.
    Lopez-Salido, David
    Theme
    Finance
    Economics
     
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise