Fiscal Stimulus with Spending Reversals

Gernot Müller, Giancarlo Corsetti and Andre Meier

No 2009/106, IMF Working Papers from International Monetary Fund

Abstract: The impact of fiscal stimulus depends not only on short-term tax and spending policies, but also on expectations about offsetting measures in the future. This paper analyzes the effects of an increase in government spending under a plausible debt-stabilizing policy that links current stimulus to a subsequent period of spending restraint. Accounting for such spending reversals brings an otherwise standard new Keynesian model in line with the stylized facts of fiscal transmission, including the crowding-in of consumption and the 'puzzle' of real exchange rate depreciation. Time series evidence for the U.S. supports the empirical relevance of spending reversals.

Keywords: WP; interest rate (search for similar items in EconPapers)
Pages: 39
Date: 2009-05-01
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Citations: View citations in EconPapers (92)

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Related works:
Journal Article: Fiscal Stimulus with Spending Reversals (2012)
Working Paper: Fiscal Stimulus with spending reversals (2009)
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