10:00 am EDT - 12:15 pm EDT

Past Event

The fiscal-monetary mix in an era of low interest rates

Friday, June 02, 2017

10:00 am - 12:15 pm EDT

Brookings Institution
Falk Auditorium

1775 Massachusetts Avenue N.W.
Washington, DC

The likelihood that interest rates will be lower than historic norms for the foreseeable future and that, in some future economic downturn, the Federal Reserve will again push short-term interest rates to zero raises significant challenges not only for monetary policymakers but to fiscal policymakers as well. Should monetary and fiscal policy be more coordinated when the Fed hits the effective lower bound? How does “helicopter money” actually  work?  How large a public debt is prudent and optimal in an era of slow growth and low interest rates?

On June 2, the Hutchins Center on Fiscal and Monetary Policy examines these issues with two papers. In one, Federal Reserve Board economists William English, David Lopez-Salido, and Christopher Erceg find that money-financed fiscal expansions – sometimes called helicopter money – can provide a significant boost to an economy but there are risks with this strategy. In the other, Neil Mehrotra of Brown University and the Federal Reserve Bank of Minneapolis analyzes the case that the government can and should borrow more in an era in which inflation-adjusted interest rates are low and economic growth is slow.