Fiscal Policy Multipliers In A New Keynesian Model Under Positive And Zero Nominal Interest Rate

This paper uses a simple new-Keynesian model (with and without capital) and calculates multipliers of four types. That is, the authors assume either an increase in government spending or a cut in sales/labor/capital tax that is financed by lump-sum taxes (Ricardian evidence holds). They argue that multipliers of a temporary fiscal stimulus for separable preferences and zero nominal interest rate results in lower values than what is obtained by Eggertsson (2010). Using Christiano et al. (2009) non-separable utility framework which they used to calculate spending multipliers they study tax cuts as well and find that sales tax cut multiplier can be well above one (joint with government spending) when zero lower bound on nominal interest binds.

Provided by: Cardiff University Topic: CXO Date Added: Apr 2011 Format: PDF

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