2011 Articles
Simple Analytics of the Government Expenditure Multiplier
This paper explains the key factors that determine the output multiplier of government purchases in New Keynesian models, through a series of simple examples that can be solved analytically. Sticky prices or wages allow for larger multipliers than in a neoclassical model, though the size of the multiplier depends crucially on the monetary policy response. A multiplier well in excess of one is possible when monetary policy is constrained by the zero lower bound, and in this case welfare increases if government purchases expand to partially fill the output gap that arises from the inability to lower interest rates.
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- mac.3.1.pdf application/pdf 967 KB Download File
Also Published In
- Title
- American Economic Journal: Macroeconomics
- DOI
- https://doi.org/10.1257/mac.3.1.1
More About This Work
- Academic Units
- Economics
- Publisher
- American Economic Association
- Published Here
- November 21, 2013