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The Keynesian multiplier, news and fiscal policy rules in a DSGE model

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  • Perendia, George
  • Tsoukis, Chris

Abstract

We extend the standard Smets-Wouters (2007) medium-sized DSGE model in two directions, namely to analyse the effects of news and the Keynesian multiplier, and secondly to incorporate a fiscal policy rule. We show that both the news channel and the government spending fiscal policy rule significantly improve the model fit to data. News shows up significantly, but most of its contribution comes from the fiscal rule as opposed to consumption. We then calculate the fiscal multipliers which appear more Keynesian (with a higher effect on output and a positive effect on consumption, more persistent) than argued in much preceding literature.

Suggested Citation

  • Perendia, George & Tsoukis, Chris, 2012. "The Keynesian multiplier, news and fiscal policy rules in a DSGE model," Dynare Working Papers 25, CEPREMAP.
  • Handle: RePEc:cpm:dynare:025
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    Cited by:

    1. Paul Beaudry & Franck Portier, 2014. "News-Driven Business Cycles: Insights and Challenges," Journal of Economic Literature, American Economic Association, vol. 52(4), pages 993-1074, December.

    More about this item

    Keywords

    DSGE model; news; fiscal policy; Taylor rule; Keynesian multiplier;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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