Template-Type: ReDIF-Paper 1.0 Author-Name: William John Tayler Author-Name-First: William John Author-Name-Last: Tayler Author-Name: Roy Zilberman Author-Name-First: Roy Author-Name-Last: Zilberman Title: Monetary and Financial Tax Interventions in Liquidity Traps Abstract: We characterize the joint optimal conduct of unconventional monetary and financial tax policies in a New Keynesian model wherein endogenous supply-side financial frictions generate inflationary credit spreads. Cost-push borrowing costs and private asset taxes substantially alter the transmission of optimal monetary policy under both discretion and commitment. State-contingent asset tax regimes remove the zero lower bound restriction on the nominal policy rate, thus minimizing output and price fluctuations following both supply-driven and demand-driven liquidity traps. Discretionary and commitment policies with financial taxation deliver virtually equivalent welfare gains, and invalidate calls for time-inconsistent forward guidance strategies.



Creation-Date: 2019 File-URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/LancasterWP2019_005.pdf File-Format: application/pdf Number: 257107351 Classification-JEL: E32, E44, E52, E58, E63 Keywords: deposit taxation, credit cost channel, optimal policy, discretion vs. commitment, zero lower bound Handle: RePEc:lan:wpaper:257107351