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Transfers Plus Open-Market Purchases: a Remedy for Recession

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Author Info

  • Laurence S. Seidman

    ()
    (Department of Economics,University of Delaware)

  • Kenneth A. Lewis

    ()
    (Department of Economics,University of Delaware)

Abstract

This paper simulates the use of transfers to households plus central-bank open-market purchases to generate a recovery of a low-interest-rate economy from a negative demand shock. Transfers to households are automatically triggered in recession; the prescribed anti-recession transfer ratio is proportional to the unemployment gap. Three alternative complementary monetary policies that the Federal Reserve might decide to implement are considered: standard, moderate, and aggressive. The simulations suggest that transfers plus open market purchases are likely to be an effective remedy for such a recession while limiting potential adverse impacts on inflation and government debt held by the non-central-bank public.

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File URL: http://graduate.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2004/UDWP2004-02.pdf
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Bibliographic Info

Paper provided by University of Delaware, Department of Economics in its series Working Papers with number 04-02.

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Length: 34 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:dlw:wpaper:04-02

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Postal: Purnell Hall, Newark, Delaware 19716
Phone: (302) 831-2565
Fax: (302) 831-6968
Web page: http://www.lerner.udel.edu/departments/economics/department-economics/
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Keywords: Macroecomics; Recession;

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  1. Shapiro, Matthew D & Slemrod, Joel, 1995. "Consumer Response to the Timing of Income: Evidence from a Change in Tax Withholding," American Economic Review, American Economic Association, vol. 85(1), pages 274-83, March.
  2. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," American Economic Review, American Economic Association, vol. 90(2), pages 120-125, May.
  3. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, vol. 89(4), pages 947-958, September.
  4. Seidman, Laurence S & Lewis, Kenneth A, 2002. "A New Design for Automatic Fiscal Policy," International Finance, Wiley Blackwell, vol. 5(2), pages 251-84, Summer.
  5. David Reifschneider & Robert Tetlow & John Williams, 1999. "Aggregate disturbances, monetary policy, and the macroeconomy: the FRB/US perspective," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-19.
  6. Laurence Seidman, 2001. "Reviving Fiscal Policy," Challenge, M.E. Sharpe, Inc., vol. 44(3), pages 17-42, May.
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