Demand Side Shocks and Macroeconomic Policy

Maciej Dudek

No 216, Computing in Economics and Finance 2004 from Society for Computational Economics

Abstract: The paper focuses on short run macroeconomic dynamics triggered by demand side shocks. In particular, the paper analyzes, in a general equilibrium framework, the impact of transitory demand side shocks on the behavior of macroeconomic variables and examines the relevance of policy instruments during downturns in economics activity. The paper establishes that transitory shocks can have persistent effects. It shows that stabilization is desirable even if shocks are transitory in nature. In particular, the article reveals that debt financed government spending is a viable stabilization tool and can improve welfare at all horizons even though it inhibits physical capital formation. Finally, the paper resolves apparently contradictory observations and shows that recessions are simultaneously times of cleansing and sullying

Keywords: Business Cycles; Policy; Debt; Welfare Costs (search for similar items in EconPapers)
JEL-codes: D5 E3 E6 (search for similar items in EconPapers)
Date: 2004-08-11
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf4:216

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