Interest Rate Cuts versus Stimulus Payments: An Equivalence Result

I derive a general condition on consumer behavior ensuring that, in a standard model of demand-determined output, any path of inflation and output that is implementable via interest rate policy is also implementable through time-varying uniform transfers. In an analytical model with occasionally binding borrowing constraints, my condition holds generically. In a quantitative heterogeneous-agent model, the transfer policy that closes any given demand shortfall is furthermore well characterized by a small number of measurable sufficient statistics. My results extend to environments with investment if transfers are supplemented by another standard fiscal tool: bonus depreciation.