Self-Financing of Fiscal Deficits under Active Monetary Policy

This repository contains my bachelor's thesis in Economics at the University of Copenhagen and the accompanying Python code.

Abstract

This thesis studies to what extent a debt-financed government stimulus check can help pay for itself in a non-Ricardian economy with price rigidities. Self-financing occurs through an expansion of the tax base and through inflation eroding the real value of public debt. Building on Angeletos, Lian, and Wolf (2024), I show that delaying fiscal adjustment does not necessarily increase self-financing under active monetary policy. I also study transfers announced before implementation and show that implementation delays increase self-financing under neutral monetary policy, while this relationship can break down under active monetary policy.

Repository contents

• Bachelors_Thesis___Casper_Moes.pdf: The full bachelor's thesis.
• Præsentation.pdf: Slides from the thesis presentation.
• code/OLGNK_analytical.py: Analytical OLG–New Keynesian model.
• code/OLGNK_preannounced.py: Model with pre-announced transfers.
• code/OLGNKHTM_preannounced.py: Quantitative extension with hand-to-mouth households.
• code/check_demandboom_condition.py: Checks conditions for a positive demand response.
• figures/: Main figures from the thesis.
• appendix/: Supplementary figures and robustness checks.