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Exploring Fiscal Policy at Zero Interest Rates in Intermediate Macroeconomics

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  • Srikanth Ramamurthy
  • Norman Sedgley

Abstract

Since the financial meltdown of 2007, advanced macroeconomic theory has delved more deeply into the question of the appropriate fiscal policy when the nominal interest rate is close to or at zero percent. Such analysis is typically conducted with the aid of New Keynesian Dynamic Stochastic General Equilibrium models. The policy implications are, in some cases, surprising. Multipliers can change by large magnitudes, and the signs of some tax multipliers are reversed. The authors show how these results can be clearly presented to an intermediate undergraduate audience within the standard IS-MP and AD-AS framework of Jones (2011).

Suggested Citation

  • Srikanth Ramamurthy & Norman Sedgley, 2013. "Exploring Fiscal Policy at Zero Interest Rates in Intermediate Macroeconomics," The Journal of Economic Education, Taylor & Francis Journals, vol. 44(4), pages 353-363, October.
    • Handle: RePEc:taf:jeduce:v:44:y:2013:i:4:p:353-363
    DOI: 10.1080/00220485.2013.825113
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    References listed on IDEAS

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    3. Laurence M. Ball, 2006. "Fiscal Remedies for Japan's Slump," NBER Chapters, in: Monetary Policy with Very Low Inflation in the Pacific Rim, pages 279-304, National Bureau of Economic Research, Inc.
    4. 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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