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The effectiveness of government spending in deep recessions: a New Keynesian perspective

  • Keith Kuester

As the recent recession unfolded, policymakers in the U.S. and abroad employed both monetary and fiscal stabilization tools to help mitigate the downturn. One of the tools that can be used by fiscal policymakers is to actively purchase more goods and services: the idea being that the government’s demand can offset the weak demand by households and firms. For such a policy to be effective, one needs to know the extent to which government spending can stimulate the economy. One of the models frequently used by economists who study business cycles suggests that the answer depends very much on the extent to which monetary policy can be employed to stabilize the economy. In “The Effectiveness of Government Spending in Deep Recessions: A New Keynesian Perspective,” (226 KB, 7 pages) Keith Kuester reviews the literature on the effectiveness of government spending during severe recessions.

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File URL: http://www.philadelphiafed.org/research-and-data/publications/business-review/2011/q3/brq311_government-spending-in-deep-recessions.pdf
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Article provided by Federal Reserve Bank of Philadelphia in its journal Business Review.

Volume (Year): (2011)
Issue (Month): Q3 ()
Pages: 14-20

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Handle: RePEc:fip:fedpbr:y:2011:i:q3:p:14-20
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  1. Cogan, John F. & Cwik, Tobias J. & Taylor, John B. & Wieland, Volker, 2009. "New Keynesian versus old Keynesian government spending multipliers," CFS Working Paper Series 2009/17, Center for Financial Studies (CFS).
  2. Keith Sill, 2011. "Inflation dynamics and the New Keynesian Phillips curve," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 17-25.
  3. Giancarlo Corsetti & Keith Kuester & André Meier & Gernot J. Müller, 2010. "Debt Consolidation and Fiscal Stabilization of Deep Recessions," American Economic Review, American Economic Association, vol. 100(2), pages 41-45, May.
  4. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2009. "When is the government spending multiplier large?," NBER Working Papers 15394, National Bureau of Economic Research, Inc.
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