Fiscal Policy in the New Neoclassical Synthesis

Ludger Linnemann and Andreas Schabert

Journal of Money, Credit and Banking, 2003, vol. 35, issue 6, 911-29

Abstract: We analytically derive the cyclical effects of fiscal policy shocks in a New Neoclassical Synthesis model. Price stickiness has the consequence that a rise in government demand affects labor demand, while at the same time the usual wealth effect boosts labor supply. The strength of the demand effect depends on the response of the real interest rate governed by the monetary policy regime. When the central bank controls money growth, fiscal expansions are deflationary and might even be contractionary, whereas output, wages, and, inflation can increase when the rise in the real interest rate is dampened by an interest rate rule, However, price stickiness alone is not sufficient to explain a rise in consumption as predicted by Keynesian theory.

Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (148)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:35:y:2003:i:6:p:911-29

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().