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The Intertemporal Keynesian Cross

Author

Listed:
  • Adrien Auclert

    (Stanford)

  • Ludwig Straub

    (MIT)

  • Matthew Rognlie

    (Northwestern University)

Abstract

We demonstrate the importance of intertemporal marginal propensities to consume (IMPCs) in the transmission mechanism of macroeconomic shocks. We show that IMPCs are sufficient statistics for propagation, amplification, and the determinacy of general equilibrium outcomes. Incomplete markets models with precautionary savings and borrowing constraints capture the shape of IMPCs in the data, while alternative models with complete markets, overlapping generations, or hand to mouth agents cannot. Calibrating our model to existing evidence on IMPCs, we find that Taylor rules can ensure determinacy with a coefficient on inflation moderately less than 1, and that policies that frontload spending, such as tax cuts and deficit-financed government expenditure increases, have powerful multiplier effects.

Suggested Citation

  • Adrien Auclert & Ludwig Straub & Matthew Rognlie, 2018. "The Intertemporal Keynesian Cross," 2018 Meeting Papers 999, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:999
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    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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