New Keynesian versus Old Keynesian Government Spending Multipliers

24 Pages Posted: 7 Apr 2009

See all articles by John F. Cogan

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)

Volker Wieland

University of Frankfurt

Multiple version iconThere are 3 versions of this paper

Date Written: March 2009

Abstract

Renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy. Because of modeling 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 just when needed most, and GDP and employment effects are only one-sixth as large, with private sector employment impacts likely to be even smaller.

Keywords: Fiscal Policy, Government Spending, Keynesian models, model uncertainty, Multiplier

JEL Classification: C52, E62

Suggested Citation

Cogan, John F. and Cwik, Tobias J. and Taylor, John B. and Wieland, Volker, New Keynesian versus Old Keynesian Government Spending Multipliers (March 2009). CEPR Discussion Paper No. DP7236, Available at SSRN: https://ssrn.com/abstract=1372556

John F. Cogan

Stanford University - The Hoover Institution on War, Revolution and Peace ( email )

HHMB Rm 347
Stanford, CA 94305
United States
(650) 723-2585 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tobias J. Cwik

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue
Washington, DC 20551
United States

HOME PAGE: http://www.federalreserve.gov/econresdata/tobias-cwik.htm

John B. Taylor

Stanford University ( email )

Stanford, CA 94305
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Volker Wieland (Contact Author)

University of Frankfurt ( email )

House of Finance
Grüneburgplatz 1
Frankfurt am Main, D-60323
Germany
+49 69 798 33805 (Phone)
+49 69 798 33907 (Fax)

HOME PAGE: http://www.volkerwieland.com

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
8
Abstract Views
817
PlumX Metrics