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Simple Analytics of the Government Expenditure Multiplier

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  • Michael Woodford

Abstract

This paper explains the key factors that determine the output multiplier of government purchases in New Keynesian models, through a series of simple examples that can be solved analytically. Sticky prices or wages allow for larger multipliers than in a neoclassical model, though the size of the multiplier depends crucially on the monetary policy response. A multiplier well in excess of one is possible when monetary policy is constrained by the zero lower bound, and in this case welfare increases if government purchases expand to partially fill the output gap that arises from the inability to lower interest rates. (JEL E12, E23, E32, E62, H20, H50)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.3.1.1
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 3 (2011)
Issue (Month): 1 (January)
Pages: 1-35

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Handle: RePEc:aea:aejmac:v:3:y:2011:i:1:p:1-35

Note: DOI: 10.1257/mac.3.1.1
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  3. Vasco Cúrdia & Michael Woodford, 2008. "Credit frictions and optimal monetary policy," Working Paper Research 146, National Bank of Belgium.
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  18. Mankiw, N. Gregory & Reis, Ricardo, 2002. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Scholarly Articles 3415324, Harvard University Department of Economics.
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  1. Quelle est la taille du multiplicateur budgétaire ?
    by ? in D'un champ l'autre on 2014-01-17 21:59:00
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