Advanced Search
MyIDEAS: Login

A Theory of Countercyclical Government Multiplier

Contents:

Author Info

  • Pascal Michaillat

Abstract

I develop a New Keynesian model in which a type of government multiplier doubles when unemployment rises from 5 percent to 8 percent. This multiplier indicates the additional number of workers employed when one worker is hired in the public sector. Graphically, in equilibrium, an upward-sloping quasi-labor supply intersects a downward-sloping labor demand in a (employment, labor market tightness) plane. Increasing public employment stimulates labor demand, which increases tightness and therefore crowds out private employment. Critically, the quasi-labor supply is convex. Hence, when labor demand is depressed and unemployment is high, the increase in tightness and resulting crowding-out are small.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.6.1.190
Download Restriction: no

File URL: http://www.aeaweb.org/aej/mac/data/0601/2012-0220_data.zip
Download Restriction: no

File URL: http://www.aeaweb.org/aej/mac/ds/0601/2012-0220_ds.zip
Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

Bibliographic Info

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

Volume (Year): 6 (2014)
Issue (Month): 1 (January)
Pages: 190-217

as in new window
Handle: RePEc:aea:aejmac:v:6:y:2014:i:1:p:190-217

Note: DOI: 10.1257/mac.6.1.190
Contact details of provider:
Email:
Web page: http://www.aeaweb.org/aej-macro
More information through EDIRC

Order Information:
Web: http://www.aeaweb.org/subscribe.html

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2010. "Optimal Unemployment Insurance over the Business Cycle," NBER Working Papers 16526, National Bureau of Economic Research, Inc.
  2. Rotemberg, Julio J, 1982. "Monopolistic Price Adjustment and Aggregate Output," Review of Economic Studies, Wiley Blackwell, vol. 49(4), pages 517-31, October.
  3. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  4. Silva, José Ignacio & Toledo, Manuel, 2009. "Labor Turnover Costs And The Cyclical Behavior Of Vacancies And Unemployment," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S1), pages 76-96, May.
  5. Tommaso Monacelli & Roberto Perotti & Antonella Trigari, 2010. "Unemployment Fiscal Multipliers," NBER Working Papers 15931, National Bureau of Economic Research, Inc.
  6. Steinar Holden & Victoria Sparrman, 2011. "Do Government Purchases Affect Unemployment?," CESifo Working Paper Series 3482, CESifo Group Munich.
  7. Mark Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2003. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," Working Papers 2003-07, Department of Economics, Bar-Ilan University.
  8. Fabio Canova & Evi Pappa, 2011. "Fiscal Policy, Pricing Frictions and Monetary Accommodation," Working Papers 549, Barcelona Graduate School of Economics.
  9. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
  10. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, 09.
  11. Cheron, Arnaud & Langot, Francois, 2000. "The Phillips and Beveridge curves revisited," Economics Letters, Elsevier, vol. 69(3), pages 371-376, December.
  12. Mark Gertler & Antonella Trigari, 2009. "Unemployment Fluctuations with Staggered Nash Wage Bargaining," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 38-86, 02.
  13. Bachmann, Rüdiger & Sims, Eric R., 2012. "Confidence and the transmission of government spending shocks," Journal of Monetary Economics, Elsevier, vol. 59(3), pages 235-249.
  14. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Fiscal Multipliers in Recession and Expansion," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 63-98 National Bureau of Economic Research, Inc.
  15. Olivier Blanchard & Jordi Galí, 2010. "Labor Markets and Monetary Policy: A New Keynesian Model with Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 1-30, April.
  16. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78 - 121.
  17. Michael U. Krause & Thomas A. Lubik & David López-Salido, 2008. "Inflation dynamics with search frictions : a structural econometric analysis," Working Paper 08-01, Federal Reserve Bank of Richmond.
  18. Finn, Mary G, 1998. "Cyclical Effects of Government's Employment and Goods Purchases," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 635-57, August.
  19. Gregory, Robert G. & Borland, Jeff, 1999. "Recent developments in public sector labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 53, pages 3573-3630 Elsevier.
  20. Peter N. Ireland, 1999. "Sticky-Price Models of the Business Cycle: Specification and Stability," Boston College Working Papers in Economics 426, Boston College Department of Economics.
  21. Emi Nakamura & Jón Steinsson, 2011. "Fiscal Stimulus in a Monetary Union: Evidence from U.S. Regions," NBER Working Papers 17391, National Bureau of Economic Research, Inc.
  22. Pascal Michaillat, 2012. "Do Matching Frictions Explain Unemployment? Not in Bad Times," American Economic Review, American Economic Association, vol. 102(4), pages 1721-50, June.
  23. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  24. Campbell, Carl M, III & Kamlani, Kunal S, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 759-89, August.
  25. Todd C. Neumann & Price V. Fishback & Shawn Kantor, 2007. "The Dynamics of Relief Spending and the Private Urban Labor Market During the New Deal," NBER Working Papers 13692, National Bureau of Economic Research, Inc.
  26. Jonathan A. Parker, 2011. "On Measuring the Effects of Fiscal Policy in Recessions," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 703-18, September.
  27. Hairault, J.O. & Portier, F., 1992. "Money New-Keynesian Macroeconomics and the Business Cycles," Papiers d'Economie Mathématique et Applications 92.32, Université Panthéon-Sorbonne (Paris 1).
  28. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  29. R. Anton Braun & Lena Mareen Körber & Yuichiro Waki, 2012. "Some unpleasant properties of log-linearized solutions when the nominal rate is zero," Working Paper 2012-05, Federal Reserve Bank of Atlanta.
  30. Emmanuel Saez & Pascal Michaillat, 2013. "A Theory of Aggregate Supply and Aggregate Demand as Functions of Market Tightness with Prices as Parameters," 2013 Meeting Papers 1216, Society for Economic Dynamics.
  31. Evi Pappa, 2009. "The Effects Of Fiscal Shocks On Employment And The Real Wage," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 217-244, 02.
  32. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 921-55, November.
  33. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 217-27, April.
  34. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  35. Pissarides, Christopher A, 1989. "Unemployment and Macroeconomics," Economica, London School of Economics and Political Science, vol. 56(221), pages 1-14, February.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:aea:aejmac:v:6:y:2014:i:1:p:190-217. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.