BIS paper warns against ‘timid’ QE and ‘debt-averse’ fiscal policy

Policy mistakes at zero lower bound can worsen economic problems, authors say

The Bank for International Settlements, Basel
The Bank for International Settlements, Basel
Photo: Ulrich Roth

“Timidity” by central bankers or an excessive aversion to debt by fiscal policy-makers can make economic problems worse, research published by the Bank for International Settlements finds.

Boris Hofmann, Marco Jacopo Lombardi, Benoît Mojon and Athanasios Orphanides use a “small-scale” model to explore fiscal-monetary interactions when rates hit the zero lower bound.

Their analysis highlights several policy lessons. First, low equilibrium rates create “significant constraints” for monetary

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