A Fiscal Stimulus and Jobless Recovery
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Summary:
We analyse the effects of a government spending expansion in a DSGE model with Mortensen-Pissarides labour market frictions, deep habits in private and public consumption, investment adjustment costs, a constant-elasticity-of-substitution (CES) production function, and adjustments in employment both at the intensive as well as the extensive margin. The combination of deep habits and CES technology is crucial. The presence of deep habits magnifies the responses of macroeconomic variables to a fiscal stimulus, while an elasticity of substitution between capital and labour in the range of available estimates allows the model to produce a scenario compatible with the observed jobless recovery.
Series:
Working Paper No. 2013/017
Subject:
Consumption Expenditure Fiscal policy Fiscal stimulus Labor National accounts Unemployment
English
Publication Date:
January 18, 2013
ISBN/ISSN:
9781475595338/1018-5941
Stock No:
WPIEA2013017
Pages:
53
Please address any questions about this title to publications@imf.org