Fiscal policy and learning
Using the standard real business cycle model with lump-sum taxes, we analyze the impact of fiscal policy when agents form expectations using adaptive learning rather than rational expectations (RE). The output multipliers for government purchases are significantly higher under learning, and fall within empirical bounds reported in the literature (in sharp contrast to the implausibly low values under RE). Effectiveness of fiscal policy is demonstrated during times of economic stress like the recent Great Recession. Finally it is shown how leaning can lead to dynamics empirically documented during episodes of "fiscal consolidations".
|Date of creation:||27 Jan 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.suomenpankki.fi/en/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eric M. Leeper & Nora Traum & Todd B. Walker, 2011. "Clearing Up the Fiscal Multiplier Morass," NBER Working Papers 17444, National Bureau of Economic Research, Inc.
- Eva Carceles-Poveda & Chryssi Giannitsarou, 2007.
"Online Appendix to Asset Pricing with Adaptive Learning,"
carceles08, Review of Economic Dynamics.
- Eva Carceles Poveda & Chryssi Giannitsarou, 2006.
"Asset pricing with adaptive learning,"
Computing in Economics and Finance 2006
25, Society for Computational Economics.
- Campbell, John Y., 1994.
"Inspecting the mechanism: An analytical approach to the stochastic growth model,"
Journal of Monetary Economics,
Elsevier, vol. 33(3), pages 463-506, June.
- Campbell, John, 1994. "Inspecting the Mechanism: An Analytical Approach to the Stochastic Growth Model," Scholarly Articles 3196342, Harvard University Department of Economics.
- John Y. Campbell, 1992. "Inspecting the Mechanism: An Analytical Approach to the Stochastic Growth Model," NBER Working Papers 4188, National Bureau of Economic Research, Inc.
- Stefano Eusepi & Bruce Preston, 2007.
"Central Bank Communication and Expectations Stabilization,"
0708-10, Columbia University, Department of Economics.
- Eusepi, Stefano & Preston, Bruce, 2007. "Central bank communication and expectations stabilization," Proceedings, Federal Reserve Bank of San Francisco, issue March, pages 1-43.
- Stefano Eusepi & Bruce Preston, 2010. "Central Bank Communication and Expectations Stabilization," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 235-71, July.
- Stefano Eusepi & Bruce Preston, 2007. "Central Bank Communication and Expectations Stabilization," NBER Working Papers 13259, National Bureau of Economic Research, Inc.
- Stefano Eusepi & Bruce Preston, 2008.
"Expectations, Learning And Business Cycle Fluctuations,"
CAMA Working Papers
2008-20, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Stefano Eusepi & Bruce Preston, 2011. "Expectations, Learning, and Business Cycle Fluctuations," American Economic Review, American Economic Association, vol. 101(6), pages 2844-72, October.
- Stefano Eusepi & Bruce Preston, 2008. "Expectations, Learning and Business Cycle Fluctuations," NBER Working Papers 14181, National Bureau of Economic Research, Inc.
- Chryssi Giannitsarou, 2004.
"Supply-side reforms and learning dynamics,"
Money Macro and Finance (MMF) Research Group Conference 2003
36, Money Macro and Finance Research Group.
- Michael Kumhof & Dirk Muir & Carlos de Resende & Jan in â€˜t Veld & RenÃ© Lalonde & Davide Furceri & Annabelle Mourougane & John Roberts & Stephen Snudden & Mathias Trabandt & GÃ¼nter Coenen & Susanna, 2010.
"Effects of Fiscal Stimulus in Structural Models,"
IMF Working Papers
10/73, International Monetary Fund.
- G�nter Coenen & Christopher J. Erceg & Charles Freedman & Davide Furceri & Michael Kumhof & Ren� Lalonde & Douglas Laxton & Jesper Lind� & Annabelle Mourougane & Dirk Muir & Susanna Mursula & Carlos d, 2012. "Effects of Fiscal Stimulus in Structural Models," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 22-68, January.
- Heijdra, Ben J., 2009. "Foundations of Modern Macroeconomics," OUP Catalogue, Oxford University Press, edition 2, number 9780199210695, March.
- Preston, Bruce, 2006. "Adaptive learning, forecast-based instrument rules and monetary policy," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 507-535, April.
When requesting a correction, please mention this item's handle: RePEc:hhs:bofrdp:2012_005. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Minna Nyman)
If references are entirely missing, you can add them using this form.