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State-dependent fiscal multipliers: Calvo vs. Rotemberg

Eric Sims () and Jonathan Wolff ()

Economics Letters, 2017, vol. 159, issue C, 190-194

Abstract: This paper studies the properties of the fiscal multiplier in both the Calvo (1983) and Rotemberg (1982) variants of the New Keynesian model. Though identical to first order, the two variants of the model are not the same globally or to higher order. We solve both versions of the model using a third order approximation, and compute the distributions of fiscal multipliers by drawing from the ergodic distributions of states. The multiplier is significantly more variable across states in the Rotemberg model. These differences are magnified when the nominal interest rate is pegged instead of governed by an active Taylor rule.

Keywords: Fiscal multiplier; State-dependence; New Keynesian model (search for similar items in EconPapers)
JEL-codes: E30 E50 E52 E60 E62 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1016/j.econlet.2017.08.009

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