It's not just fiscal policy. It's monetary policy as well. Outsourced to David Beckworth:
Macro and Other Market Musings: Here is the first of Cochrane's statements:
Mike [Woodford] recognizes, as I do, that the Fed can do nothing more to raise nominal GDP today. Rates are at zero. The Fed has did what it could.
This is not Woodford's view. He is a firm believer in the power of expectations to create immediate and meaningful monetary stimulus, even at the zero-bound. Woodford makes this point very clear early in the paper….
[P]eople’s expectations about future policy are a critical aspect of the way in which monetary policy decisions affect the economy…. [E]ven when the current policy rate is constrained by the lower bound, a variety of different short-run outcomes for the economy should remain possible, depending on what is expected about future policy.
This is why Woodford endorsed a NGDP level target. He sees it as a practical way for the Fed to conditionally commit to a future path of monetary policy that would raise aggregate nominal expenditures today….
A NGDP level target… is a way of managing expectations about the future path of the monetary base or the policy interest rate that would raise aggregate spending today. Contrary to Cochrane's claim, then, Woodford believes there is much the Fed can do but simply has failed to do so….
The second of Cochrane's statement speaks to ability of the Fed to keep long-run inflation expectations anchored if it allows temporarily higher inflation:
More deeply, how does the Fed commit to allowing "just a bit" of inflation in the future, and not starting down the path of the 1970s again?
This concern… is misplaced since Woodford proposes a NGDP "target path" or level target. A level target anchors long-run inflation expectations, but allows for temporary catch-up growth or contraction in NGDP so that past misses in aggregate nominal expenditure growth do not cause NGDP to permanently deviate from its targeted growth path…. Nominal and thus inflationary expectations would be firmly anchored. Woodford explicitly makes this point:
[S]uch a commitment would accordingly require pursuit of nominal GDP growth well above the intended long-run trend rate for a few years in order to close this gap. At the same time, such a commitment would clearly bound the amount of excess nominal income growth that would be allowed, at a level consistent with the Fed’s announced long-runt target for inflation.
Woodford also notes that such a rule would actually tend to reduce AD shocks since it would create well-anchored nominal spending and nominal income expectations that wold prevent such a shock from materializing in the first place.