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Global policy at the Zero Lower Bound in a large-scale DSGE model
E52 - Monetary Policy (Targets, Instruments, and Effects)
E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization
F42 - International Policy Coordination and Transmission
The purpose of this paper is to analyse whether fiscal policies can alleviate the effects of the zero lower bound (ZLB) on interest rates and if they should be coordinated internationally. The analysis is carried out using EAGLE, a DSGE model of the global economy. We consider that the fiscal shocks are temporary and that fscal policy retains full credibility at all times. In this setup we find significant non-linearities in a ZLB situation that amplify theeffects of fiscal shocks compared to the non-ZLB case. International coordination is helpful but does not play a major role in the results.
Global policy at the zero lower bound in a large-scale DSGE model