The fiscal stimulus debate "Bone-headed" and "Neanderthal"?
|Publication:||Policy Letter No. 3, 2009|
|Topic Area:||Macro Finance|
|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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