Niccolò Battistini, Giovanni Callegari, 11 March 2020

With monetary policy constrained by the effective lower bound, the debt sustainability implications of a fiscal expansion are a pressing concern. This column shows that in a general equilibrium model of fiscal limits, the adverse impact of a fiscal expansion on sustainability is muted at the effective lower bound compared with normal times. Getting the timing of public spending increases right, however, is essential for containing sustainability risks.

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