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Government spending at the zero lower bound (ZLB) is not necessarily welfare enhancing, even when its output multiplier is large. We illustrate this point in the context of a standard New Keynesian model. In that model, when government spending provides direct utility to the household, its optimal level is at most 0.5-1 percent of GDP for recessions of -4 percent; the numbers are higher for deeper recessions. When spending does not provide direct utility, it is generically welfare-detrimental: it should be kept unchanged at a long run-optimal value.
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We discuss the main fiscal policy issues in the Eurozone. Our goal is pedagogical: we do not make any new proposal, but try to represent fairly the various sides of the debate. We focus on two issues that are at the core of the current debate. The first is that, right from the start, the government deficit and debt were the key objects of contention in the debate that led to the creation of the Eurozone -- and they still are, although the reasons have changed. The second, obvious issue is that a currency union implies the loss of a country-specific instrument, a national monetary policy. This puts a higher burden on fiscal policy as a tool to counteract shocks, a burden that might be even heavier now that the European Central Bank has arguably reached the Zero Lower Bound. Two obvious solutions are mutual insurance between countries; and a centralized stabilization policy. Yet both have been remarkably difficult to come by. We argue that the main reason is fear of persistent, unidirectional transfers between countries, an issue that largely reflects a Northern vs. Southern Europe divide.
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"L'hélicoptère monétaire" : cette métaphore extravagante paraît avoir aujourd'hui envahi les débats d'ordinaire si sérieux entre économistes financiers et monétaires. Pourquoi ce terme tiré d'un texte de Milton Friedman publié en 1969 ressurgit-il avec autant de force aujourd'hui ? Qu'en est-il vraiment d'un outil de politique publique présenté par certains comme un instrument miracle et par d'autres comme une solution fantasque, voire dangereuse ? On tente ici de décrypter les réalités que recouvre la proposition d'injecter de la monnaie dans l'économie sous forme de transferts directs aux individus. À l'heure où la question de l'abolition de la dette des États fait plus que jamais débat, ce petit livre donne les clés pour en comprendre tous les enjeux.
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