A Fiscal Stimulus and Jobless Recovery

54 Pages Posted: 22 Feb 2013

See all articles by Cristiano Cantore

Cristiano Cantore

University of Surrey; Bank of England

Paul Levine

School of Economics, University of Surrey

Giovanni Melina

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2013

Abstract

We analyse the effects of a government spending expansion in a DSGE model with Mortensen-Pissarides labour market frictions, deep habits in private and public consumption, investment adjustment costs, a constant-elasticity-of-substitution (CES) production function, and adjustments in employment both at the intensive as well as the extensive margin. The combination of deep habits and CES technology is crucial. The presence of deep habits magnifies the responses of macroeconomic variables to a fiscal stimulus, while an elasticity of substitution between capital and labour in the range of available estimates allows the model to produce a scenario compatible with the observed jobless recovery.

Keywords: Business cycles, CES production function, Economic models, Fiscal policy, Government expenditures, Unemployment, deep habits, fiscal policy, labor market search-match frictions, unemployment

JEL Classification: E24, E62

Suggested Citation

Cantore, Cristiano and Levine, Paul L. and Melina, Giovanni, A Fiscal Stimulus and Jobless Recovery (January 2013). IMF Working Paper No. 13/17. Available at SSRN: https://ssrn.com/abstract=2222481

Cristiano Cantore

University of Surrey ( email )

Guildford
Guildford, Surrey GU2 5XH
United Kingdom

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Paul L. Levine

School of Economics, University of Surrey ( email )

Guildford
Surrey GU2 7XH
United Kingdom
+44 1483 259 380 Ext. 2773 (Phone)
+44 1483 259 548 (Fax)

Giovanni Melina

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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