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New Keynesian Versus Old Keynesian Government Spending Multipliers

  • John Cogan

    ()

    (Hoover Institute, Stanford University)

  • Tobias Cwik

    (Goethe University Frankfurt)

  • John Taylor

    ()

    (Department of Economics, Stanford University)

  • Volker Wieland

    ()

    (Goethe University Frankfurt)

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 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 with GDP and employment effects only one-sixth as large and with private sector employment impacts likely to be even smaller.

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Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 08-030.

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Date of creation: Feb 2009
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Handle: RePEc:sip:dpaper:08-030
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