BoE paper models impact of ‘active’ fiscal policy
Active fiscal policy complicates monetary policy but can generate higher welfare, author says
“Active” fiscal policy creates a more complicated trade-off for monetary policy-makers but can lead to higher welfare in some circumstances, research published by the Bank of England finds.
In a working paper, Richard Harrison explores cases where the government sets fiscal policy actively, rather than passively adjusting taxes and spending to stabilise the debt stock. He uses a standard New Keynesian model augmented to include long-term government debt.
Active fiscal policy implies an
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