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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 modelling 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 with GDP and employment effects only one-sixth as large. JEL Classification: C52, E62

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1090.

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Date of creation: Sep 2009
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Handle: RePEc:ecb:ecbwps:20091090

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Keywords: fiscal multiplier; Fiscal Stimulus; government spending; Macroeconomic Modeling; New Keynesian Model;

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