Fiscal policy and learning
Mitra, Kaushik; Evans, George W.; Honkapohja, Seppo (26.01.2012)
Numero
5/2012Julkaisija
Bank of Finland
2012
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:bof-20140807316Tiivistelmä
Using the standard real business cycle model with lump-sum taxes, we analyze the impact of fiscal policy when agents form expectations using adaptive learning rather than rational expectations (RE). The output multipliers for government purchases are significantly higher under learning, and fall within empirical bounds reported in the literature (in sharp contrast to the implausibly low values under RE). Effectiveness of fiscal policy is demonstrated during times of economic stress like the recent Great Recession. Finally it is shown how learning can lead to dynamics empirically documented during episodes of "fiscal consolidations." JEL classification: E62, D84, E21, E43 Key words: Government Purchases, Expectations, Output Multiplier, Fiscal Consolidation, Taxation
Julkaisuhuomautus
Published as Fiscal Policy Multipliers in an RBC Model with Learning, Macroeconomic Dynamics, 2019 ; 23 ; 1.