Fiscal Policy Can Reduce Unemployment: But There is a Less Costly and More Effective Alternative
AbstractThis paper uses a model with a continuum of equilibrium steady state unemployment rates to explore the effectiveness of fiscal policy. The existence of multiple steady state equilibria is explained by the presence of search and recruiting costs. I use the model to explain the current financial crisis as a shift to a high unemployment equilibrium, induced by the self-fulfilling beliefs of market participants about asset prices. I ask two questions. 1) Can fiscal policy help us out of the crisis? 2) Is there an alternative to fiscal policy that is less costly and more effective? The answer to both questions is yes.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15021.
Date of creation: May 2009
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Find related papers by JEL classification:
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-30 (All new papers)
- NEP-CBA-2009-05-30 (Central Banking)
- NEP-DGE-2009-05-30 (Dynamic General Equilibrium)
- NEP-LAB-2009-05-30 (Labour Economics)
- NEP-MAC-2009-05-30 (Macroeconomics)
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- Ulrich van Suntum, . "Economic Confidence, Negative Interest Rates, and Liquidity: Towards Keynesianism 2.0," Working Papers 200108, Institute of Spatial and Housing Economics, Munster Universitary.
- van Suntum, Ulrich, 2009. "Economic confidence, negative interest rates, and liquidity: Towards Keynesianism 2.0," CAWM Discussion Papers 24, Center of Applied Economic Research Münster (CAWM), University of Münster.
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