Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
There is a long-standing consensus view that macroeconomic stabilization should rely on monetary policy, not fiscal policy. This paper reconsiders this view using an analytically tractable heterogeneous agent New Keynesian (HANK) model that is parameterized so as to admit a bubble in public debt. In this context, it is possible to stabilize either inflation or output in response to aggregate shocks by varying only fiscal policy (that is, lump-sum uniform transfers). In contrast, when the public debt bubble is large, it is impossible to stabilize either inflation or output by varying only interest rates (monetary policy).