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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://www.lerner.udel.edu/economics/WorkingPapers/2004/UDWP2004-02.pdf
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Publisher 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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Related research
Keywords: Macroecomics; Recession;

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  1. Laurence Seidman, 2001. "Reviving Fiscal Policy," Challenge, M.E. Sharpe, Inc., vol. 44(3), pages 17-42, May. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. 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. [Downloadable!]
  4. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," American Economic Review, American Economic Association, vol. 90(2), pages 120-125, May. [Downloadable!] (restricted)
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  5. 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. [Downloadable!] (restricted)
    Other versions:
  6. Seidman, Laurence S & Lewis, Kenneth A, 2002. "A New Design for Automatic Fiscal Policy," International Finance, Blackwell Publishing, vol. 5(2), pages 251-84, Summer. [Downloadable!] (restricted)
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