The Fiscal Stimulus Debate "Bone-Headed" and "Neanderthal"?

Publication: Policy Letter No. 3, 2009
Topic Area: Macro and Finance
Authors: Volker Wieland
Date: Mar 2009
Keywords: fiscal policy, new Keynesian macroeconomic models

US economic advisers called for aggressive fiscal stimulus, and some support further measures. But many macroeconomists are not so sure. This column analyses fiscal stimulus using a New Keynesian model that exemplifies contemporary academic thinking on the subject. It says that the spending multiplier is much lower than the Obama administration’s estimates – government spending may quickly crowd out private consumption and investment.

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