Limits of Monetary Policy (DeLong)

The limits of monetary policy in a liquidity trap by Brad DeLong (03/2012). “In such a setup, the conclusion of Mankiw and Weinzerl that monetary policy has the exclusive role to play is straightforward: One stabilization policy tool-monetary policy-is non-distortionary. The other stabilization policy tool-fiscal policy-is distortionary. If monetary policy can do the job, there is then no need for fiscal policy. And if you do resort to fiscal policy, use the fiscal policy that is most effective at getting people to spend money on the things they were at the tipping point of buing anyway-use the investment tax credit rather than direct government purchases or tax cuts which might well not be spent. End of argument.”