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State-dependent fiscal multipliers: Calvo vs. Rotemberg

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  • Sims, Eric
  • Wolff, Jonathan

Abstract

This paper studies the properties of the fiscal multiplier in both the Calvo (1983) and Rotemberg (1982) variants of the New Keynesian model. Though identical to first order, the two variants of the model are not the same globally or to higher order. We solve both versions of the model using a third order approximation, and compute the distributions of fiscal multipliers by drawing from the ergodic distributions of states. The multiplier is significantly more variable across states in the Rotemberg model. These differences are magnified when the nominal interest rate is pegged instead of governed by an active Taylor rule.

Suggested Citation

  • Sims, Eric & Wolff, Jonathan, 2017. "State-dependent fiscal multipliers: Calvo vs. Rotemberg," Economics Letters, Elsevier, vol. 159(C), pages 190-194.
    • Handle: RePEc:eee:ecolet:v:159:y:2017:i:c:p:190-194
    DOI: 10.1016/j.econlet.2017.08.009
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    References listed on IDEAS

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    1. Stefan Laséen & Lars E.O. Svensson, 2009. "Anticipated Alternative Instrument-Rate Paths in Policy Simulations," NBER Working Papers 14902, National Bureau of Economic Research, Inc.
    2. Boneva, Lena Mareen & Braun, R. Anton & Waki, Yuichiro, 2016. "Some unpleasant properties of loglinearized solutions when the nominal rate is zero," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 216-232.
    3. Richter, Alexander W. & Throckmorton, Nathaniel A., 2016. "Is Rotemberg pricing justified by macro data?," Economics Letters, Elsevier, vol. 149(C), pages 44-48.
    4. Guido Ascari & Lorenza Rossi, 2012. "Trend Inflation and Firms Price‐Setting: Rotemberg Versus Calvo," Economic Journal, Royal Economic Society, vol. 122(563), pages 1115-1141, September.
    5. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    6. Miao, Jianjun & Ngo, Phuong V., 2021. "Does Calvo Meet Rotemberg At The Zero Lower Bound?," Macroeconomic Dynamics, Cambridge University Press, vol. 25(4), pages 1090-1111, June.
    7. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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    Cited by:

    1. Sims, Eric & Wolff, Jonathan, 2018. "The state-dependent effects of tax shocks," European Economic Review, Elsevier, vol. 107(C), pages 57-85.
    2. Joonseok Oh, 2020. "The Propagation Of Uncertainty Shocks: Rotemberg Versus Calvo," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(3), pages 1097-1113, August.
    3. OH, Joonseok, 2019. "The propagation of uncertainty shocks : Rotemberg vs. Calvo," Economics Working Papers ECO 2019/01, European University Institute.
    4. George Economides & Anastasios Xepapadeas, 2025. "Monetary policy stabilization in a new Keynesian model under climate change," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 56, April.
    5. Diego Comin & Robert C. Johnson & Callum J. Jones, 2023. "Supply Chain Constraints and Inflation," Finance and Economics Discussion Series 2023-075, Board of Governors of the Federal Reserve System (U.S.).
    6. Kamalyan, Hayk, 2021. "The State-Dependent Effects of Monetary Policy: Calvo versus Rotemberg," MPRA Paper 107490, University Library of Munich, Germany.
    7. Malley, James & Philippopoulos, Apostolis, 2023. "The macroeconomic effects of funding U.S. infrastructure," European Economic Review, Elsevier, vol. 152(C).

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    Keywords

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    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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