Suchergebnisse

Does fiscal policy have large and qualitatively different effects on the economy when the nominal interest rate is zero? An emerging consensus in the New Keynesian literature is that the answer is yes. New evidence provided here suggests that the answer is often no. For a broad range of empirically relevant parameterizations of the Rotemberg model of costly price adjustment, the government purchase multiplier is about one or less, and the response of hours to a tax cut is either negative or close to zero.

Does fiscal policy have qualitatively different effects on the economy in a liquidity trap? We analyze a nonlinear stochastic New Keynesian model and compare the true and loglinearized equilibria. Using the loglinearized equilibrium conditions, the answer to the above question is yes. However, for the true nonlinear model, the answer is no. For a broad range of empirically relevant parameterizations, labor falls in response to a tax cut in the loglinearized economy but rises in the true economy. While the government purchase multiplier is above two in the loglinearized economy it is about one in the true economy.