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New Keynesian versus Old Keynesian Government Spending Multipliers

  • John F. Cogan
  • Tobias Cwik
  • John B. Taylor
  • Volker Wieland

Renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy. Because of modelling uncertainty, it is essential that policy evaluations be robust to alternative assumptions. We find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust. Government spending multipliers in an alternative empirically-estimated and widely-cited new Keynesian model are much smaller than in these old Keynesian models; the estimated stimulus is extremely small just when needed most, and GDP and employment effects are only one-sixth as large, with private sector employment impacts likely to be even smaller.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14782.

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Date of creation: Mar 2009
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Publication status: published as Cogan, John F. & Cwik, Tobias & Taylor, John B. & Wieland, Volker, 2010. "New Keynesian versus old Keynesian government spending multipliers," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 281-295, March.
Handle: RePEc:nbr:nberwo:14782
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