Exit strategies

•Model-based analysis of exit strategies from post-crisis policy accommodation.•Banks subject to runs with endogenous determination of leverage and risk.•Under a Taylor rule, the interest rate stays at the ZLB for several years.•Announced and fast fiscal consolidations perform well based on output, inflation and bank stability.•Under an alternative rule where the interest rate does not reach the ZLB, results are more nuanced.

We study alternative scenarios for exiting the post-crisis fiscal and monetary accommodation using a macromodel where banks choose their capital structure and are subject to runs. Under a Taylor rule, the post-crisis interest rate hits the zero lower bound (ZLB) and remains there for several years. In that condition, pre-announced and fast fiscal consolidations dominate - based on output and inflation performance and bank stability - alternative strategies incorporating various degrees of gradualism and surprise. We also examine an alternative monetary strategy in which the interest rate does not reach the ZLB; the benefits from fiscal consolidation persist but are more nuanced.