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A fiscal stimulus with deep habits and optimal monetary policy

  • Cantore, Cristiano
  • Levine, Paul
  • Melina, Giovanni
  • Yang, Bo

A New-Keynesian model with deep habits and optimal monetary policy delivers a larger-than-1 fiscal multiplier and consumption crowding in. Optimized Taylor-type rules dominate a conventional Taylor rule. Consumption is crowded out if the Taylor rule is suboptimal or if commitment is absent.

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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 117 (2012)
Issue (Month): 1 ()
Pages: 348-353

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Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:348-353
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  12. Punnoose Jacob, 2013. "Deep habits, price rigidities and the consumption response to Government spending," Reserve Bank of New Zealand Discussion Paper Series DP2013/03, Reserve Bank of New Zealand.
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