Simple Analytics of the Government Expenditure Multiplier

Michael Woodford

American Economic Journal: Macroeconomics, 2011, vol. 3, issue 1, 1-35

Abstract: 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. (JEL E12, E23, E32, E62, H20, H50)

JEL-codes: E12 E23 E32 E62 H20 H50 (search for similar items in EconPapers)
Date: 2011
Note: DOI: 10.1257/mac.3.1.1
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Citations: View citations in EconPapers (572)

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Related works:
Working Paper: Simple Analytics of the Government Expenditure Multiplier (2010)
Working Paper: Simple Analytics of the Government Expenditure Multiplier (2010)
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