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New Keynesian versus old Keynesian government spending multipliers: A comment

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  • Hughes Hallett, Andrew
  • Rannenberg, Ansgar
  • Schreiber, Sven

Abstract

Cogan et al. (2009, 2010) claim that the stimulus package passed by the United States Congress in February 2009 had a multiplier far below one. However, the stimulus’ multiplier strongly depends on the assumed monetary policy response. Based on official statements from the Fed chairman, the economic outlook, past behavior of the FOMC, optimal policy considerations, and financial market expectations, we find that in February 2009 a period of monetary accommodation of three years would have been a reasonable prediction. This implies that an appropriate real time assessment of the stimulus’ effects would have been more optimistic than Cogan et al.’s. --

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Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2014/6.

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Date of creation: 2014
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Handle: RePEc:zbw:fubsbe:20146

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Keywords: Obama fiscal stimulus; fiscal multiplier; interest rate forecasts;

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