Is policy perversity consistent with Keynesian business cycles?

It has long been recognized that higher spending can, by raising interest rates and thereby firms’ short-run marginal costs, have stagflationary supply-side effects. This possibility has attracted little attention, probably because it seems inconsistent with the Keynesian view that recessions are caused by decreases, not increases, in demand. This note clarifies these issues by distinguishing between one-time and ongoing changes in spending, and concludes that the relevance of the fiscal perversity hypothesis is increased by the ongoing changes in how monetary policy is conducted.