Research Discussion Paper – RDP 2014-02 Fiscal Policy and the Inflation Target

Contents

• Introduction
• The New Regime of Fiscal Activism
• Modelling Countercyclical Fiscal Policy
• The FRB/US Model
• The Effect of Fiscal Stimulus
• Lessons of the Crisis
• Expectations
• Directions for Future Research
• Appendix A: Measurement of Recent Stimulus
• Appendix B: FRB/US Fiscal Equations
• References

The Discussion Paper series is intended to make the results of the current economic research within the Reserve Bank available to other economists. Its aim is to present preliminary results of research so as to encourage discussion and comment. Views expressed in this paper are those of the authors and not necessarily those of the Reserve Bank. Use of any results from this paper should clearly attribute the work to the authors and not to the Reserve Bank of Australia.

The contents of this publication shall not be reproduced, sold or distributed without the prior consent of the Reserve Bank of Australia.

A first draft of this paper was written while the author was employed at the Federal Reserve Board of Governors. I am especially grateful to John Roberts for many thoughtful, detailed suggestions that greatly improved the paper. Thanks also to Flint Brayton, Eric Engen, Glenn Follette, Christopher Kent, Mariano Kulish, Mark Lasky, David Orsmond, Dan Rees, Dan Sichel, Carl Walsh, Johannes Wieland, John Williams, anonymous journal referees and many of my colleagues at the Fed for comments and technical assistance. Candace Adelberg and Peter Chen provided research assistance.