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Stimulus without debt in a severe recession

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  • Seidman, Laurence
  • Lewis, Kenneth

Abstract

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.

Suggested Citation

  • Seidman, Laurence & Lewis, Kenneth, 2015. "Stimulus without debt in a severe recession," Journal of Policy Modeling, Elsevier, vol. 37(6), pages 945-960.
  • Handle: RePEc:eee:jpolmo:v:37:y:2015:i:6:p:945-960 DOI: 10.1016/j.jpolmod.2015.09.002
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    References listed on IDEAS

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    1. Laurence Seidman, 2001. "Reviving Fiscal Policy," Challenge, Taylor & Francis Journals, vol. 44(3), pages 17-42.
    2. Feldstein, Martin, 2010. "U.S. growth in the decade ahead," Journal of Policy Modeling, Elsevier, vol. 32(5), pages 610-614, September.
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    6. J. Bradford DeLong & Lawrence H. Summers, 2012. "Fiscal Policy in a Depressed Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(1 (Spring), pages 233-297.
    7. Blanchard, Olivier, 2010. "Sustaining a global recovery," Journal of Policy Modeling, Elsevier, vol. 32(5), pages 604-609, September.
    8. Laurence Seidman, 2013. "Stimulus Without Debt," Challenge, Taylor & Francis Journals, vol. 56(6), pages 38-59.
    9. repec:fth:harver:1418 is not listed on IDEAS
    10. Kenneth A. Lewis & Laurence S. Seidman, 2010. "Did the 2008 Rebate Fail? A Response to Taylor and Feldstein ," Working Papers 10-06, University of Delaware, Department of Economics.
    11. 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.
    12. 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.
    13. Jonathan A. Parker & Nicholas S. Souleles & David S. Johnson & Robert McClelland, 2013. "Consumer Spending and the Economic Stimulus Payments of 2008," American Economic Review, American Economic Association, vol. 103(6), pages 2530-2553, October.
    14. Stiglitz, Joseph E., 2010. "Robust growth or anemic recovery in the U.S. and the global economy," Journal of Policy Modeling, Elsevier, vol. 32(5), pages 632-636, September.
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    Keywords

    Stimulus; Recession; Debt;

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