A Fiscal Stimulus and Jobless Recovery

By Cristiano Cantore, Paul L Levine, Giovanni Melina

January 18, 2013

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Cristiano Cantore, Paul L Levine, and Giovanni Melina. A Fiscal Stimulus and Jobless Recovery, (USA: International Monetary Fund, 2013) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We analyse the effects of a government spending expansion in a DSGE model with Mortensen-Pissarides labour market frictions, deep habits in private and public consumption, investment adjustment costs, a constant-elasticity-of-substitution (CES) production function, and adjustments in employment both at the intensive as well as the extensive margin. The combination of deep habits and CES technology is crucial. The presence of deep habits magnifies the responses of macroeconomic variables to a fiscal stimulus, while an elasticity of substitution between capital and labour in the range of available estimates allows the model to produce a scenario compatible with the observed jobless recovery.

Subject: Consumption, Expenditure, Fiscal policy, Fiscal stimulus, Labor, National accounts, Unemployment

Keywords: CES production function, CES technology, Consumption, Deep habits, Depreciation rate, Fiscal policy, Fiscal stimulus, Government spending, Government spending expansion, Jobless recovery, Labor market search-match frictions, Unemployment, Unemployment multiplier, WP

Publication Details

Pages:

53
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/017
Stock No:

WPIEA2013017
ISBN:

9781475595338
ISSN:

1018-5941

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