A Fiscal Stimulus and Jobless Recovery
Cantore, C, Levine, P and Melina, G (2011) A Fiscal Stimulus and Jobless Recovery Discussion Paper. (Unpublished)
Available under License : See the attached licence file.
We analyse the effects of a government spending expansion in a dynamic stochastic general equilibrium (DSGE) model with Mortensen-Pissarides labour market frictions, deep habits and a constant-elasticity-of-substitution (CES) production function. The combination of deep habits and CES technology is crucial. The presence of deep habits enables the model to deliver output and unemployment multipliers in the high range of recent empirical estimates, while an elasticity of substitution between capital and labour in the range of available estimates allows it to produce a scenario compatible with the observed jobless recovery. An accommodative monetary policy with respect to the output gap alongside sticky prices plays an important role for the stabilisation properties of the fiscal stimulus.
|Item Type:||Monograph (Discussion Paper)|
|Additional Information:||Reproduced with permission of the authors.|
|Divisions:||Faculty of Business, Economics and Law > Economics|
|Deposited By:||Symplectic Elements|
|Deposited On:||22 May 2012 19:57|
|Last Modified:||01 Apr 2013 14:34|
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