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Stimulus without debt in a severe recession

Listed author(s):
  • Seidman, Laurence
  • Lewis, Kenneth
Registered author(s):

    This paper simulates the impact in a calibrated small macroeconomic model of a policy that attempts to apply sufficient effective stimulus in a severe recession without increasing the government deficit or debt, or inflation. This stimulus- without-debt policy has two components: (1) a large standard fiscal stimulus; (2) a non-standard monetary stimulus—a large transfer from the central bank to the treasury of the same magnitude as the fiscal stimulus, offset by an equal cut in the central bank's open market purchases so that the bank's transfer to the treasury is money-neutral. According to the simulations, the policy would achieve prompt full recovery from the severe recession without generating any adverse effect on government debt as a percent of GDP or on the inflation rate in either the short run or long run. The difference between the stimulus-without-debt policy and alternative stimulus policies is explained.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0161893815000952
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    Article provided by Elsevier in its journal Journal of Policy Modeling.

    Volume (Year): 37 (2015)
    Issue (Month): 6 ()
    Pages: 945-960

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    Handle: RePEc:eee:jpolmo:v:37:y:2015:i:6:p:945-960
    DOI: 10.1016/j.jpolmod.2015.09.002
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505735

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    1. Feldstein, Martin, 2010. "U.S. growth in the decade ahead," Journal of Policy Modeling, Elsevier, vol. 32(5), pages 610-614, September.
    2. Blanchard, Olivier, 2010. "Sustaining a global recovery," Journal of Policy Modeling, Elsevier, vol. 32(5), pages 604-609, September.
    3. repec:fth:harver:1418 is not listed on IDEAS
    4. Kenneth A. Lewis & Laurence S. Seidman, 2011. "Did the 2008 rebate fail? a response to Taylor and Feldstein," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 34(2), pages 183-204, January.
    5. Laurence Seidman, 2013. "Stimulus Without Debt," Challenge, M.E. Sharpe, Inc., vol. 56(6), pages 38-59, November.
    6. Seidman, Laurence S & Lewis, Kenneth A, 2002. "A New Design for Automatic Fiscal Policy," International Finance, Wiley Blackwell, vol. 5(2), pages 251-284, Summer.
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    16. Yasuo Hirose & Koichiro Kamada, 2002. "Time-Varying NAIRU and Potential Growth in Japan," Bank of Japan Working Paper Series Research and Statistics D, Bank of Japan.
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