A Fiscal Stimulus and Jobless Recovery

Cristiano Cantore, Paul Levine () and Giovanni Melina

No 1111, School of Economics Discussion Papers from School of Economics, University of Surrey

Abstract: We analyse the effects of a government spending expansion in a dynamic stochastic general equilibrium (DSGE) model with Mortensen-Pissarides labour market frictions, deep habits and a constant-elasticity-of-substitution (CES) production function. The combination of deep habits and CES technology is crucial. The presence of deep habits enables the model to deliver output and unemployment multipliers in the high range of recent empirical estimates, while an elasticity of substitution between capital and labour in the range of available estimates allows it to produce a scenario compatible with the observed jobless recovery. An accommodative monetary policy with respect to the output gap alongside sticky prices plays an important role for the stabilisation properties of the fiscal stimulus.

Keywords: Fiscal policy; deep habits; labour market search-match frictions; unemployment; CES production function (search for similar items in EconPapers)
JEL-codes: E24 E62 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2011-12
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: A Fiscal Stimulus and Jobless Recovery (2014)
Working Paper: A Fiscal Stimulus and Jobless Recovery (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:1111

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