New Keynesian versus Old Keynesian Government Spending Multipliers

By John F. Cogan, Tobias J. Cwik, John B. Taylor, Volker Wieland. Social Science Research Network, 2010

811 citations recorded by the source corpus.

Renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy. Because of modeling uncertainty, it is essential that policy evaluations be robust to alternative assumptions. We find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust. Government spending multipliers in an alternative empirically-estimated and widely-cited new Keynesian model are much smaller than in these old Keynesian models; the estimated stimulus is extremely small just when needed most, and GDP and employment effects are only one-sixth as large, with private sector employment impacts likely to be even smaller.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/0b54498be4ede5ff1720962fbeb7d038fd2b0594

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

Citations in the corpus

FiMod - a DSGE Model for Fiscal Policy Simulations (2012, background): “In the discussion on fiscal multipliers, the effects just described are, generally, understood to typically accompany public spending multipliers (see, among others, Cogan et al. 2009; Coenen et al., 2010a; and Hebous, 2010).”
Clearing Up the Fiscal Multiplier Morass (2011, neutral): “(2011) and Cogan et al. (2010) and other multiplier studies.”
Public and private sector wages interactions in a general equilibrium model (2010, neutral): “Demekas and Kontolemis (2000) use a static model in which government and private sector employers compete for workers but make employment and wage decisions on the basis of different objective functions, and in which a public sector wage premium arises if the (exogenous) probabilities of moving from”
Some Fiscal Calculus (2010, background): “I assume that log γt follows a stationary AR(1) with autoregressive parameter ργ .”
Can Government Purchases Stimulate the Economy (2011, methodology): “Cogan et al. (2010) discuss, the typical New Keynesian model (e.g., Frank Smets and Rafael Wouters 2007) predicts a much smaller multiplier. Since the New Keynesian model builds a sticky-price edifice on a neoclassical foundation, neoclassical effects tend to mute the Keynesian multiplier. Cogan et ”
Automatic Fiscal Stabilisers: What They Are and What They Do (2012, neutral): “(2002), Taylor (2009), and Cogan et al. (2010). Others have argued the severity of the crisis required automatic stabilisers to be complemented by discretionary action and that the persistence of the crisis meant implementation lags were arguably of lesser importance than under normal circumstances.”
Fiscal Policy in an Expectations-Driven Liquidity Trap (2014, neutral): “Woodford (2010) points out that the small multiplier effects found by Cogan et al. (2009) are most likely due to different assumptions about the duration of the increase in government spending.”
Cross-Border Spillovers from Fiscal Stimulus (2009, neutral): “Arguments rage over the size of fiscal multipliers (e.g., Cogan et al. 2009, Romer and Bernstein 2009, or Uhlig 2009), as well as the magnitude of international spillovers from fiscal stimulus at the national level.”
Measuring the Output Responses to Fiscal Policy (2012, neutral): “Cogan et al., 2009, Eric M. Leeper, Todd B. Walker, and ShuChun Susan Yang, 2010). A main objective of this paper is to explore this gray area and to provide estimates of state-dependent fiscal multipliers. Our starting point is the classic paper by Olivier Blanchard and Roberto Perotti (2002), whic”
Macroeconomic Shocks and Their Propagation (2016, background): “Coibion (2012) explores many possible reasons for the differences and provides very satisfactory and revealing answers.”