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 implementation 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-side-driven and demand-side-driven liquidity traps. Discretionary and commitment policies with financial taxation deliver virtually equivalent welfare gains, and invalidate calls for time-inconsistent forward guidance strategies.<br/><br/>
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: financial taxation, monetary policy, optimal policy, credit cost channel, credit spreads, zero lower bound
Handle: RePEc:lan:wpaper:257107351