Should We Use Linearized Models To Calculate Fiscal Multipliers?
Jesper Lindé and
Mathias Trabandt ()
No 350, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)
We calculate the magnitude of the government consumption multiplier in linearized and nonlinear solutions of a New Keynesian model at the zero lower bound. Importantly, the model is amended with real rigidities to simultaneously account for the macroeconomic evidence of a low Phillips curve slope and the microeconomic evidence of frequent price changes. We show that the nonlinear solution is associated with a much smaller multiplier than the linearized solution in long-lived liquidity traps, and pin down the key features in the model which account for the difference. Our results caution against the common practice of using linearized models to calculate scal multipliers in long-lived liquidity traps.
Keywords: Monetary Policy; Fiscal Policy; Liquidity Trap; Zero Lower Bound (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 60 pages
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://www.riksbank.se/globalassets/media/rapport ... apers/2017/wp350.pdf Full text (application/pdf)
Journal Article: Should we use linearized models to calculate fiscal multipliers? (2018)
Working Paper: Should We Use Linearized Models To Calculate Fiscal Multipliers? (2017)
Working Paper: Should We Use Linearised Models to Calculate Fiscal Multipliers? (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0350
Access Statistics for this paper
More papers in Working Paper Series from Sveriges Riksbank (Central Bank of Sweden) Sveriges Riksbank, SE-103 37 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Lena Löfgren ().