Fiscal Policy in a Business Cycle Model with Endogenous Productivity
Annals of Economics and Finance, 2018, vol. 19, issue 1, 103-135
This paper shows that transitory demand-side fiscal policy shocks can have long-run effects. We develop a Real Business Cycle model with search and matching frictions and introduce an endogenous growth channel driven by total hours worked. We estimate the model using Bayesian methods on data for the United States. The model with the endogenous growth link generates a better fit to the data than the model without the link. Further, we find evidence for cleansing effects of recessions. Therefore, transitory demand-side shocks will have long-run effects. We stress the policy relevance of endogenous productivity in recessions and for the effects of austerity programs.
Keywords: DSGE; endogenous productivity; fiscal policy; Search and matching (search for similar items in EconPapers)
JEL-codes: C11 E32 E62 J63 O40 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2018:v:19:i:1:wesselbaum
Access Statistics for this article
Annals of Economics and Finance is currently edited by Heng-fu Zou
More articles in Annals of Economics and Finance from Society for AEF Contact information at EDIRC.
Bibliographic data for series maintained by Qiang Gao ().