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Great Recession, Slow Recovery and Muted Fiscal Policies in the US

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  • Alice Albonico
  • Alessia Paccagnini
  • Patrizio Tirelli

Abstract

This paper reconsiders the role of macroeconomic shocks and policies in determining the Great Recession and the subsequent recovery in the US. The Great Recession was mainly caused by a large demand shock and by the ZLB on the interest rate policy. In contrast with previous findings, the subsequent jobless recovery is explained by the ZLB effect. We estimate a fraction of non-Ricardian households which is close to 50%, and obtain comparatively large fiscal multipliers. However we cannot detect a significant contribution of fiscal policies in stabilizing the US economy. For instance, the 2007-2009 large increase in expenditure-to-GDP ratios was apparently determined by the adverse non-policy shocks that caused the recession.

Suggested Citation

  • Alice Albonico & Alessia Paccagnini & Patrizio Tirelli, 2016. "Great Recession, Slow Recovery and Muted Fiscal Policies in the US," Working Papers 201602, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:wpaper:201602
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    4. Paccagnini, Alessia, 2017. "Dealing with Misspecification in DSGE Models: A Survey," MPRA Paper 82914, University Library of Munich, Germany.
    5. Albonico, Alice & Rossi, Lorenza, 2017. "Inflation bias and markup shocks in a LAMP model with strategic interaction of monetary and fiscal policy," Journal of Macroeconomics, Elsevier, vol. 52(C), pages 39-55.
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    7. Patrizio Tirelli & Maria Ferrara, 2020. "Disinflation, Inequality, And Welfare In A Tank Model," Economic Inquiry, Western Economic Association International, vol. 58(3), pages 1297-1313, July.
    8. Funashima, Yoshito, 2020. "Monetary policy, financial uncertainty, and secular stagnation," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    9. Zhang, Wen, 2019. "Deciphering the causes for the post-1990 slow output recoveries," Economics Letters, Elsevier, vol. 176(C), pages 28-34.
    10. Beqiraj, Elton & Di Bartolomeo, Giovanni & Di Pietro, Marco & Serpieri, Carolina, 2018. "Comparing Central Europe and the Baltic macro-economies: A Bayesian approach," EconStor Preprints 175242, ZBW - Leibniz Information Centre for Economics.

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    More about this item

    Keywords

    DSGE; Limited asset market participation; Bayesian estimation; US economy; Business cycle; Monetary policy; Fiscal policy;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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