Demand expectations and the timing of stimulus policies

Bernardo Guimaraes and Caio Machado

No 9977, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper proposes a simple macroeconomic model with staggered investment decisions. The expected return from investing depends on demand expectations, which are pinned down by fundamentals and history. Owing to an aggregate demand externality, investment subsidies can improve welfare in this economy. The model can be used to address questions concerning the timing of stimulus policies: should the government spend more on preventing the economy from falling into a recession or on rescuing the economy when productivity picks up? Results show the government should strike a balance between both objectives.

Keywords: Coordination; Demand expectations; Fiscal stimulus; Timing frictions (search for similar items in EconPapers)
JEL-codes: D84 E32 E62 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Demand expectations and the timing of stimulus policies (2015)
Working Paper: Demand expectations and the timing of stimulus policies (2015)
Working Paper: Demand expectations and the timing of stimulus Policies (2014)
Working Paper: Demand expectations and the timing of stimulus policies (2013)
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