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Fiscal Policy And the Nominal Term Premium

Publication at Central Library of Charles University |
2022

Abstract

We estimate a New Keynesian model on postwar U.S. data with the generalized method of moments using either constant or time-varying debt and distortionary labor income taxes. We show that accounting for government debt and distortionary taxes help the New Keynesian model match the level of the nominal term premium with a lower relative risk-aversion than typically found in the literature.