The Effect of Fiscal Programs with Money Financing and Yield Curve Control

41 Pages Posted: 2 Sep 2020

See all articles by Ronald Mau

Ronald Mau

University of Mississippi

Jonathan Rawls

University of Notre Dame

Date Written: July 24, 2020

Abstract

We study monetary policy in a model where long-term interest rate variability dampens the fiscal multiplier. A fixed money supply limits this variability. Moreover, a flexible money supply rule that only responds to government spending, and is otherwise fixed, further amplifies the fiscal multiplier and improves household welfare. Yield curve control, or reserve management by the central bank to reduce long-term rate variability, is most effective when the money supply responds endogenously to support a Taylor rule interest rate policy. In the fixed and flexible money supply cases, there is limited fiscal multiplier amplification at the zero lower bound.

Keywords: Fiscal Multipliers, Helicopter Drop, Money Supply, Taylor Rule, Yield Curve Control, Zero Lower Bound

JEL Classification: E51, E52, E58, E62

Suggested Citation

Mau, Ronald and Rawls, Jonathan, The Effect of Fiscal Programs with Money Financing and Yield Curve Control (July 24, 2020). Available at SSRN: https://ssrn.com/abstract=3660071 or http://dx.doi.org/10.2139/ssrn.3660071

Ronald Mau (Contact Author)

University of Mississippi ( email )

304 Odom Hall
University, MS 38677
United States

Jonathan Rawls

University of Notre Dame

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
40
Abstract Views
222
PlumX Metrics