How Does Inflation Impact the Effects of Expansionary Monetary Policy and Fiscal Policies on Real GDP Growth?
Evidence indicates the magnitudes of the multiplier effects of expansionary monetary and fiscal policies on output are bigger in the low inflation environment and low economic policy uncertainty regime than in the high inflation regime. The high trend inflation and elevated economic policy uncertainty dampen the multiplier effects of expansionary policies. Therefore low inflation and low economic policy uncertainty environments are needed to propagate the stimulatory effects of expansionary policies on GDP growth.
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