The Intertemporal Keynesian Cross

Adrien Auclert, Matthew Rognlie and Ludwig Straub

Journal of Political Economy, 2024, vol. 132, issue 12, 4068 - 4121

Abstract: We generalize the traditional, static Keynesian cross by deriving an intertemporal Keynesian cross for the dynamic output response to government spending and taxes in microfounded general equilibrium models. Intertemporal marginal propensities to consume (iMPCs) are sufficient statistics for this response, with fiscal multipliers depending only on the interaction between iMPCs and public deficits. We provide empirical estimates of iMPCs and argue that they are inconsistent with representative agent or two-agent models but can be matched by certain heterogeneous agent models. Models that match empirical iMPCs imply larger and more persistent output responses to deficit-financed fiscal policy, with cumulative spending multipliers above 1.

Date: 2024
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Related works:
Working Paper: The Intertemporal Keynesian Cross (2018)
Working Paper: The Intertemporal Keynesian Cross (2018)
Working Paper: The Intertemporal Keynesian Cross (2017)
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