Arbeitspapier
Should we use linearized models to calculate fiscal multipliers?
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 fiscal multipliers in long-lived liquidity traps.
- Language
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Englisch
- Bibliographic citation
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Series: Sveriges Riksbank Working Paper Series ; No. 350
- Classification
-
Wirtschaft
Monetary Policy
Central Banks and Their Policies
- Subject
-
Monetary Policy
Fiscal Policy
Liquidity Trap
Zero Lower Bound
- Event
-
Geistige Schöpfung
- (who)
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Lindé, Jesper
Trabandt, Mathias
- Event
-
Veröffentlichung
- (who)
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Sveriges Riksbank
- (where)
-
Stockholm
- (when)
-
2017
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Lindé, Jesper
- Trabandt, Mathias
- Sveriges Riksbank
Time of origin
- 2017
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