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New Keynesian versus old Keynesian government spending multipliers

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  • Cogan, John F.
  • Cwik, Tobias
  • Taylor, John B.
  • Wieland, Volker

Abstract

Renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy. Because of modeling uncertainty, it is essential that policy evaluations be robust to alternative assumptions. We find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust. Government spending multipliers in an alternative empirically-estimated and widely-cited new Keynesian model are much smaller than in these old Keynesian models; the estimated stimulus is extremely small just when needed most, and GDP and employment effects are only one-sixth as large, with private sector employment impacts likely to be even smaller.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7236.

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Date of creation: Mar 2009
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Handle: RePEc:cpr:ceprdp:7236

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Keywords: Fiscal Policy; Government Spending; Keynesian models; model uncertainty; Multiplier;

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  1. A First Meeting of Old and New Keynesian Econometric Models
    by John Taylor in Economics One on 2014-04-18 00:41:17
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