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
Board of Governors of the Federal Reserve System
John B. Taylor
Stanford University; National Bureau of Economic Research (NBER)
University of Frankfurt
Rock Center for Corporate Governance at Stanford University Working Paper No. 47
ECB Working Paper No. No. 1090
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.
Number of Pages in PDF File: 22
Keywords: fiscal multiplier, new Keynesian model, fiscal stimulus, government spending, macroeconomic modeling
Date posted: March 9, 2009
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