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Comparative analysis of quantitative easing and money-financed fiscal stimulus

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  • Jan Lutynski

    (Group for Research in Applied Economics (GRAPE))

Abstract

I study two types of unconventional monetary policy: quantitative easing (QE) and money-financed fiscal stimulus (MFFS), in a modified New Keynesian framework. I compare their effectiveness in stabilizing output and inflation when monetary policy is constrained by the effective lower bound. Money-financed fiscal stimulus performs better than quantitative easing, except the case of the TFP shock. It tends to cause lower inflation and output volatility. Nevertheless, it might be substantially more problematic in implementation as it demands cooperation between the central bank and the fiscal authority. Real reserve targeting (RRT) delivers similar outcomes as quantitative easing but is easier to implement.

Suggested Citation

  • Jan Lutynski, 2021. "Comparative analysis of quantitative easing and money-financed fiscal stimulus," GRAPE Working Papers 63, GRAPE Group for Research in Applied Economics.
    • Handle: RePEc:fme:wpaper:63
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    File URL: http://grape.org.pl/WP/63_Lutynski_website.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    unconventional monetary policy; quantitative easing; money-financed fiscal stimulus;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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