A Fiscal Stimulus and Jobless Recovery

Author/Editor: Cristiano Cantore ; Paul Levine ; Giovanni Melina
Publication Date: January 18, 2013
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
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. 13/17
Subject(s): Unemployment | Fiscal policy | Government expenditures | Business cycles | Economic models

Publication Date: January 18, 2013
ISBN/ISSN: 9781475595338/1018-5941 Format: Paper
Stock No: WPIEA2013017 Pages: 53
US$18.00 (Academic Rate:
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