
handle: 11588/636151
This paper investigates the role of the fiscal authority in the case in which a negative shock hits the economic system. We analyze the several kinds of behavior that the fiscal authority can adopt during a crisis and show how the various approaches impact upon the effectiveness of fiscal policy. In general, there are two approaches: a) Adopt a neutral behavior or b) Adopt an active behavior in order to stabilize output volatility caused by a slump. Using a constrained minimization process it emerges that the mere use of a monetary policy is ineffective to counteract the crisis, with the risk of keeping the system in a situation in which aggregate demand falls below the potential output. In this context, an expansionary fiscal policy may be crucial to restore the output equilibrium.
monetary authority, crisis, fiscal authority, monetary authority, budget deficit, sustainability, crisis, budget deficit, fiscal authority, sustainability, jel: jel:E61, jel: jel:E63
monetary authority, crisis, fiscal authority, monetary authority, budget deficit, sustainability, crisis, budget deficit, fiscal authority, sustainability, jel: jel:E61, jel: jel:E63
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