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Friday, October 03, 2014

Thinking the Unthinkable: The Effects of a Money-Financed Fiscal Stimulus

Jordi Gali:

Thinking the Unthinkable: The Effects of a Money-Financed Fiscal Stimulus, by Jordi Galí, Vox EU: Many unconventional policies adopted by central banks in response to the Crisis failed to boost the economy. This column discusses the effects of a temporary money-financed fiscal stimulus. When a more realistic model is allowed, such a stimulus can have a strong effect on output and employment, and a mild effect on inflation. 

He ends with:

The time may have come to leave old prejudices behind and come to terms with the urgent need to increase aggregate demand in a more foolproof way than tried up to now, especially in the Eurozone. The option of a money-financed fiscal stimulus should be considered seriously.

    Posted by on Friday, October 3, 2014 at 12:15 AM in Economics, Fiscal Policy | Permalink  Comments (68)


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