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A Fiscal Stimulus with Deep Habits and Optimal Monetary Policy

Cantore, C, Melina, G, Levine, P and Yang, B (2012) A Fiscal Stimulus with Deep Habits and Optimal Monetary Policy Discussion Paper. (Unpublished)

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Abstract

A New-Keynesian model with deep habits and optimal monetary policy delivers a fiscal multiplier above one and the crowding-in effect on private consumption obtainable in a Real Business Cycle model à la Ravn et al. (2006). Optimized Taylor-type or price-level interest rate rules yield results close to optimal policy and dominate a conventional Taylor interest rate rule. Private consumption is crowded out only if the Taylor rule is sub-optimal and then negates the fiscal stimulus by responding strongly to the output gap, or if the ability to commit is absent. At the zero lower bound private consumption is always crowded in across simple rules.

Item Type: Monograph (Discussion Paper)
Additional Information: Reproduced with permission of the authors.
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Divisions: Faculty of Business, Economics and Law > Economics
Depositing User: Symplectic Elements
Date Deposited: 24 May 2012 10:32
Last Modified: 23 Sep 2013 19:22
URI: http://epubs.surrey.ac.uk/id/eprint/427915

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