A0962
Title: Money-financed fiscal stimulus: The effects of belief and implementation lag
Authors: Hirokuni Iiboshi - Nihon University (Japan) [presenting]
Takayuki Tsuruga - The Universiity of Osaka (Japan)
Masataka Eguchi - Nagoya City University (Japan)
Abstract: The purpose is to study how fiscal policy effectiveness depends on the interaction between implementation lags and regime credibility. A New Keynesian DSGE model is constructed with Markov-switching fiscal regimes, where government spending is financed either by debt issuance or money creation. Agents form beliefs over the prevailing regime, reflecting credibility in fiscal financing strategies. Implementation lags are modeled as news shocks, introducing delays between policy announcements and execution. Results show that when the money-financed regime is highly credible, fiscal multipliers are large under short lags but decline with longer lags. However, when regime credibility is low or money demand elasticity is high, this relationship may weaken or reverse. With sufficiently long lags, the effect of credibility vanishes, and fiscal multipliers converge across regimes.
