Munich Personal RePEc Archive

Fiscal Policy and Liquidity Traps with Heterogeneous Agents

Piergallini, Alessandro (2017): Fiscal Policy and Liquidity Traps with Heterogeneous Agents.

[img]
Preview
PDF
MPRA_paper_88798.pdf

Download (147kB) | Preview

Abstract

This paper explores global dynamics in a monetary model with limited asset market participation and the zero lower bound on nominal interest rates. It is shown that a rise in government transfers to ‘non-Ricardian’ consumers financed by debt-based taxes to ‘Ricardian’ consumers is capable of escaping disinflationary paths typically convergent to a liquidity trap. Fiscal policy does not need to be unsustainable at the low inflation steady state to avoid liquidity traps, as argued in the context of the standard single representative agent setup.

Logo of the University Library LMU Munich
MPRA is a RePEc service hosted by
the University Library LMU Munich in Germany.