See Scott Sumner’s short paper.

estimates of fiscal multipliers become little more than forecasts of central bank incompetence. If the Fed is doing its job, then it will offset fiscal policy shocks and keep nominal spending growing at the desired level. Ben Bernanke would deny engaging in explicit monetary offset, as the term seems to imply something close to sabotage. But what if he were asked, “Mr. Bernanke, will the Fed do what it can to prevent fiscal austerity from leading to mass unemployment?” Would he answer “no”?

The Keynesian point of view is that the Fed “ran out of ammunition” when the Fed Funds rate went to zero. At this point, I do not know what to say to people who take that view. If it were true, then the fiscal multiplier should be bigger than one would otherwise expect. Yet it seems to have turned out smaller–the stimulus did less than predicted, and the austerity did less damage than predicted. And to me, it seems obvious that as long as there is stuff that the Fed can buy, including long-term bonds and foreign currency, it has “ammunition.” But the Keynesians routinely dismiss as incompetent anyone who who claims that the Fed cannot run out of ammunition. Perhaps Scott’s paper will force them to actually defend their position, although chances are that they will just continue to ignore or insult those with whom they disagree.

My own views do not align with either Sumner or the Keynesians. PSST is an alternative to the AS-AD story.