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 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
14782.
Length: Date of creation: Mar 2009 Date of revision: Handle: RePEc:nbr:nberwo:14782
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Find related papers by JEL classification: C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
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