A Fiscal Stimulus and Jobless Recovery
IMF Working Papers, January 18, 2013
Source details
- Canonical URL
- A Fiscal Stimulus and Jobless Recovery
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Bibliographic details
- Authors: Cristiano Cantore, Paul L Levine, Giovanni Melina
- Published: January 18, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475595338.001
Research question and model setup
- Research question: Analyze the effects of a government spending expansion.
- Model features:
- DSGE model with Mortensen-Pissarides labour market frictions.
- Deep habits in private and public consumption.
- Investment adjustment costs.
- Constant-elasticity-of-substitution (CES) production function.
- Adjustments in employment at both the intensive and the extensive margin.
Key findings
- The combination of deep habits and CES technology is crucial for the model's behavior.
- Presence of deep habits:
- Magnifies the responses of macroeconomic variables to a fiscal stimulus.
- Elasticity of substitution between capital and labour:
- When set in the range of available estimates, the model can produce a scenario compatible with the observed jobless recovery.
- The model can account for a fiscal-stimulus episode that raises aggregate activity without producing a commensurate increase in employment (jobless recovery) given the specified features.
Subject areas and keywords
- Subject: Consumption, Expenditure, Fiscal policy, Fiscal stimulus, Labor, National accounts, Unemployment
- Keywords: CES production function, CES technology, Consumption, deep habits, depreciation rate, fiscal policy, Fiscal stimulus, government spending, government spending expansion, jobless recovery, labor market search-match frictions, unemployment, unemployment multiplier, WP