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The impact of constrained monetary policy on the fiscal multipliers on output and inflation

Bletzinger, Tilman, Lalik, Magdlena, (2017), “The impact of constrained monetary policy on the fiscal multipliers on output and inflation”, ECB Working Paper Series No 2019, February

As a consequence of rising debt-to-GDP ratios in several euro area member states, the euro area as a whole is going through a period of significant fiscal consolidation. At the same time it observes a prolonged period of low inflation combined with a binding zero lower bound (ZLB) constraint on its key policy interest rates. Despite a highly accommodative monetary policy stance and modest yet stable growth in output, the inflation rate is expected to stay low also in the near future. This ambivalent reaction of output growth and inflation has not yet been fully understood.

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