Kenneth A. Lewis () (Department of Economics,University of Delaware) Laurence S. Seidman () (Department of Economics,University of Delaware)
Abstract
Using a macroeconometric model we provide a quantitative estimate of the cash transfer or tax cut that would achieve recovery from a severe recession when the central bank is unable to achieve full recovery because of the zero bound. We introduce an automatic transfer and simulate its triggering in the severe recession. We find that an automatic transfer that averages 3% of quarterly GDP repeated four times (quarterly) reduces the unemployment rate an additional full percentage point and thereby completes the recovery. We recommend that legislatures enact an automatic counter-cyclical fiscal policy that will assure adequate stimulus without generating a long-term debt problem.
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Publisher Info
Paper provided by University of Delaware, Department of Economics in its series Working Papers with number
08-04.
Find related papers by JEL classification: E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy