IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

A Fiscal Stimulus and Jobless Recovery

  • Cristiano Cantore

    (University of Surrey)

  • Paul Levine

    (University of Surrey)

  • Giovanni Melina

    (University of Surrey)

We analyse the effects of a government spending expansion in a dynamic stochastic general equilibrium (DSGE) model with Mortensen-Pissarides labour market frictions, deep habits and a constant-elasticity-of-substitution (CES) production function. The combination of deep habits and CES technology is crucial. The presence of deep habits enables the model to deliver output and unemployment multipliers in the high range of recent empirical estimates, while an elasticity of substitution between capital and labour in the range of available estimates allows it to produce a scenario compatible with the observed jobless recovery. An accommodative monetary policy with respect to the output gap alongside sticky prices plays an important role for the stabilisation properties of the fiscal stimulus.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.fahs.surrey.ac.uk/economics/discussion_papers/2011/DP11-11.pdf
Download Restriction: no

Paper provided by School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 1111.

as
in new window

Length: 41 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:sur:surrec:1111
Contact details of provider: Postal:
Guildford, Surrey GU2 5XH

Phone: (01483) 259380
Fax: (01483) 259548
Web page: http://www.surrey.ac.uk/economics/
Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Cristiano Cantore & Paul Levine & Joseph Pearlman & Bo Yang, 2014. "CES Technology and Business Cycle Fluctuations," School of Economics Discussion Papers 0414, School of Economics, University of Surrey.
  2. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper Series WP-01-08, Federal Reserve Bank of Chicago.
  3. Jordi Gali & David López-Salido & Javier Valles, 2004. "Understanding the effects of government spending on consumption," International Finance Discussion Papers 805, Board of Governors of the Federal Reserve System (U.S.).
  4. Thomas, Carlos, 2008. "Search and matching frictions and optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 936-956, July.
  5. Coenen, Günter & Orphanides, Athanasios & Wieland, Volker, 2003. "Price stability and monetary policy effectiveness when nominal interest rates are bounded at zero," CFS Working Paper Series 2003/13, Center for Financial Studies (CFS).
  6. Cristiano Cantore & Miguel León-Ledesma & Peter McAdam & Alpo Willman, 2014. "Shocking Stuff: Technology, Hours, And Factor Substitution," Journal of the European Economic Association, European Economic Association, vol. 12(1), pages 108-128, 02.
  7. Cristiano Cantore & Filippo Ferroni & Miguel A León-Ledesma, 2012. "Interpreting the Hours-Technology time-varying relationship," Studies in Economics 1201, School of Economics, University of Kent.
  8. Faia, Ester & Lechthaler, Wolfgang & Merkl, Christian, 2010. "Fiscal multipliers and the labour market in the open economy," Kiel Working Papers 1592, Kiel Institute for the World Economy (IfW).
  9. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2009. "When is the government spending multiplier large?," NBER Working Papers 15394, National Bureau of Economic Research, Inc.
  10. Shafik Hebous, 2011. "The Effects Of Discretionary Fiscal Policy On Macroeconomic Aggregates: A Reappraisal," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 674-707, 09.
  11. Ravn, Morten O & Schmitt-Grohé, Stephanie & Uribe, Martín, 2004. "Deep Habits," CEPR Discussion Papers 4269, C.E.P.R. Discussion Papers.
  12. Leith, Campbell & Moldovan, Ioana & Rossi, Raffaele, 2015. "Monetary and fiscal policy under deep habits," Journal of Economic Dynamics and Control, Elsevier, vol. 52(C), pages 55-74.
  13. Michael Woodford, 2010. "Simple Analytics of the Government Expenditure Multiplier," NBER Working Papers 15714, National Bureau of Economic Research, Inc.
  14. Cristiano Cantore & Paul Levine & Giovanni Melina & Bo Yang, 2012. "A Fiscal Stimulus with Deep Habits and Optimal Monetary Policy," School of Economics Discussion Papers 0512, School of Economics, University of Surrey.
  15. Andrew T. Levin & Alexei Onatski & John C. Williams & Noah Williams, 2005. "Monetary policy under uncertainty in micro-founded macroeconometric models," Working Paper Series 2005-15, Federal Reserve Bank of San Francisco.
  16. Sala, Luca & Söderström, Ulf & Trigari, Antonella, 2008. "Monetary Policy Under Uncertainty in an Estimated Model with Labour Market Frictions," CEPR Discussion Papers 6826, C.E.P.R. Discussion Papers.
  17. Di Pace, F. & Faccini, R., 2012. "Deep habits and the cyclical behaviour of equilibrium unemployment and vacancies," Journal of Economic Dynamics and Control, Elsevier, vol. 36(2), pages 183-200.
  18. Schorfheide, Frank, 2008. "Comment on: "Monetary policy under uncertainty in an estimated model with labor market frictions" by Luca Sala, Ulf Söderström, and Antonella Trigari," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 1007-1010, July.
  19. P. Jacob & -, 2010. "Deep Habits, Nominal Rigidities and the Response of Consumption to Fiscal Expansions," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/641, Ghent University, Faculty of Economics and Business Administration.
  20. Mark Gertler & Luca Sala & Antonella Trigari, 2008. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1713-1764, December.
  21. Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers 6112, C.E.P.R. Discussion Papers.
  22. Marcus Hagedorn & Iourii Manovskii, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," 2005 Meeting Papers 460, Society for Economic Dynamics.
  23. Cristiano Cantore & Filippo Ferroni & Miguel A. León-Ledesma, 2012. "The dynamics of hours worked and technology," Working Papers 1238, Banco de España;Working Papers Homepage.
  24. Julio J. Rotemberg, 1982. "Monopolistic Price Adjustment and Aggregate Output," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 517-531.
  25. Stacey L. Schreft & Aarti Singh & Ashley Hodgson, 2005. "Jobless recoveries and the wait-and-see hypothesis," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 81-99.
  26. Evi Pappa, 2009. "The Effects Of Fiscal Shocks On Employment And The Real Wage," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 217-244, 02.
  27. Antonio Acconcia & Giancarlo Corsetti & Saverio Simonelli, 2011. "Mafia and Public Spending: Evidence on the Fiscal Multiplier from a Quasi-experiment," Economics Working Papers ECO2011/12, European University Institute.
  28. Daniel Aaronson & Ellen R. Rissman & Daniel G. Sullivan, 2004. "Can sectoral reallocation explain the jobless recovery?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 36-39.
  29. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
  30. Daniel Aaronson & Ellen R. Rissman & Daniel G. Sullivan, 2004. "Assessing the jobless recovery," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 2-21.
  31. Erica L. Groshen & Simon M. Potter, 2003. "Has structural change contributed to a jobless recovery?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 9(Aug).
  32. Cantore, Cristiano & Levine, Paul, 2011. "Getting Normalization Right: Dealing with ‘Dimensional Constants’ in Macroeconomics," Dynare Working Papers 9, CEPREMAP.
  33. Fabio Canova & Evi Pappa, 2011. "Fiscal policy, pricing frictions and monetary accommodation," Economics Working Papers 1268, Department of Economics and Business, Universitat Pompeu Fabra.
  34. Christopher Pissarides, 2007. "The unemployment volatility puzzle: is wage stickiness the answer?," LSE Research Online Documents on Economics 4460, London School of Economics and Political Science, LSE Library.
  35. Campolmi, Alessia & Faia, Ester & Winkler, Roland C., 2010. "Fiscal calculus in a New Keynesian model with matching frictions," Kiel Working Papers 1602, Kiel Institute for the World Economy (IfW).
  36. Charles I. Jones, 2005. "The Shape of Production Functions and the Direction of Technical Change," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 517-549.
  37. Shimer, Robert, 2012. "Wage rigidities and jobless recoveries," Journal of Monetary Economics, Elsevier, vol. 59(S), pages S65-S77.
  38. Levine, Paul & McAdam, Peter & Pearlman, Joseph, 2008. "Quantifying and sustaining welfare gains from monetary commitment," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1253-1276, October.
  39. León-Ledesma, Miguel A. & McAdam, Peter & Willman, Alpo, 2010. "In dubio pro CES - Supply estimation with mis-specified technical change," Working Paper Series 1175, European Central Bank.
  40. Faia, Ester, 2008. "Comments on: "Search and matching frictions and optimal monetary policy"," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 957-960, July.
  41. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
  42. R. Ross Mackay, 2001. "Regional Taxing and Spending: The Search for Balance," Regional Studies, Taylor & Francis Journals, vol. 35(6), pages 563-575.
  43. McAdam, Peter & Willman, Alpo, 2013. "Medium Run Redux," Macroeconomic Dynamics, Cambridge University Press, vol. 17(04), pages 695-727, June.
  44. Ríos-Rull, José-Víctor & Santaeulàlia-Llopis, Raül, 2010. "Redistributive shocks and productivity shocks," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 931-948, November.
  45. Matteo Fragetta & Giovanni Melina, 2010. "The Effects of Fiscal Shocks in SVAR Models: A Graphical Modelling Approach," Birkbeck Working Papers in Economics and Finance 1006, Birkbeck, Department of Economics, Mathematics & Statistics.
  46. Simon Burgess & Helene Turon, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies – A Comment," Bristol Economics Discussion Papers 05/573, Department of Economics, University of Bristol, UK.
  47. Caldara, Dario & Kamps, Christophe, 2008. "What are the effects of fiscal policy shocks? A VAR-based comparative analysis," Working Paper Series 0877, European Central Bank.
  48. Miguel A León-Ledesma & Peter McAdam & Alpo Willman, 2012. "Non-Balanced Growth and Production Technology Estimation," Studies in Economics 1204, School of Economics, University of Kent.
  49. Brückner, Markus & Pappa, Evi, 2010. "Fiscal expansions affect unemployment, but they may increase it," CEPR Discussion Papers 7766, C.E.P.R. Discussion Papers.
  50. Ravn, Morten O. & Schmitt-Grohé, Stephanie & Uribe, Martín, 2012. "Consumption, government spending, and the real exchange rate," Journal of Monetary Economics, Elsevier, vol. 59(3), pages 215-234.
  51. Levine, Paul & McAdam, Peter & Pearlman, Joseph, 2012. "Probability models and robust policy rules," European Economic Review, Elsevier, vol. 56(2), pages 246-262.
  52. Rowthorn, Robert, 1999. "Unemployment, Wage Bargaining and Capital-Labour Substitution," Cambridge Journal of Economics, Oxford University Press, vol. 23(4), pages 413-25, July.
  53. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  54. Evi Pappa, 2005. "New Keynesian or RBC Transmission? The Effects of Fiscal Policy in Labor Markets," Working Papers 293, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  55. Dario Caldara & Christophe Kamps, 2012. "The analytics of SVARs: a unified framework to measure fiscal multipliers," Finance and Economics Discussion Series 2012-20, Board of Governors of the Federal Reserve System (U.S.).
  56. David Andolfatto & Glenn MacDonald, 2004. "Jobless Recoveries," Macroeconomics 0412014, EconWPA.
  57. Linnemann, Ludger, 2006. "The Effect of Government Spending on Private Consumption: A Puzzle?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1715-1735, October.
  58. Chirinko, Robert S., 2008. "[sigma]: The long and short of it," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 671-686, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:sur:surrec:1111. 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: (Ioannis Lazopoulos)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.