## A Fiscal Stimulus and Jobless Recovery

_IMF Working Papers, January 18, 2013_

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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

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### 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

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/a-fiscal-stimulus-and-jobless-recovery-40259_