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New Keynesian versus Old Keynesian Government Spending Multipliers
John F. Cogan Stanford University - The Hoover Institution on War, Revolution and Peace; National Bureau of Economic Research (NBER) Tobias J. Cwik Goethe University Frankfurt John B. Taylor Stanford University Volker Wieland University of Frankfurt; European Union; Centre for Economic Policy Research (CEPR) February 2009 Rock Center for Corporate Governance at Stanford University Working Paper No. 47 ECB Working Paper No. No. 1090 Abstract: Renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy. Because of modelling uncertainty, it is essential that policy evaluations be robust to alternative assumptions. We find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust. Government spending multipliers in an alternative empirically-estimated and widely-cited new Keynesian model are much smaller than in these old Keynesian models; the estimated stimulus is extremely small with GDP and employment effects only one-sixth as large and with private sector employment impacts likely to be even smaller.
Keywords: fiscal multiplier, new Keynesian model, fiscal stimulus, government spending, macroeconomic modeling Working Paper SeriesDate posted: March 09, 2009 ; Last revised: November 08, 2009Suggested CitationContact Information
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