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The Impact of Fiscal Policy on Macroeconomic Indicators in DSGE-models

Mikhail Andreyev () and Andrey Polbin

Finansovyj žhurnal — Financial Journal, 2018, issue 3, 21-33

Abstract: The article reviews theoretical works on the government spending impact on the main macroeconomic indicators. Both neoclassical models with flexible prices and neo-Keynesian models with rigidities are considered by authors. As monetary policy matters in neo-Keynesian models, this work raises the problem of relationship between monetary policy and the fiscal multiplier size. Special attention is given to the peculiarities of fiscal policy in the liquidity trap. The authors examined the changes of fiscal policy effectiveness when the interest rate is at zero lower bound. At this economic situation the most effective fiscal policy is to stimulate aggregate demand, while stimulating the aggregate supply (e.g. reducing distortionary production taxes) may have a negative effect on economic activity. The article ends with conclusions about the possible fiscal policy in Russia.

Keywords: general equilibrium; DSGE; Neo-Keynesian economics fiscal policy; fiscal multiplier; liquidity trap; fiscal consolidation (search for similar items in EconPapers)
JEL-codes: D58 E47 E62 E63 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.31107/2075-1990-2018-3-21-33

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Handle: RePEc:fru:finjrn:180302:p:21-33