Models of government expenditure multipliers

Sebastian Dyrda and José-Víctor Ríos-Rull
Authors registered in the RePEc Author Service: José-Víctor Ríos-Rull

No 12-2, Economic Policy Paper from Federal Reserve Bank of Minneapolis

Abstract: In this note, we demonstrate and analyze the inability of standard neoclassical models to generate accurate estimates of the fiscal multiplier (that is, the macroeconomic response to increased government spending). We then examine whether estimates can be improved by incorporating recently developed theory on demand-induced productivity increases into neoclassical models. We find that neoclassical models modified in this fashion produce considerably better estimates, but they remain unable to generate anything close to an accurate value of the fiscal multiplier.

Date: 2012
New Economics Papers: this item is included in nep-dge and nep-pbe
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Citations: View citations in EconPapers (4)

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