Fiscal Stimulus with Spending Reversals
Copyright policy )Fiscal Stimulus with Spending Reversals
The impact of fiscal stimulus depends not only on short-term tax and spending policies, but also on expectations about offsetting measures in the future. This paper analyzes the effects of an increase in government spending under a plausible debt-stabilizing policy that links current stimulus to a subsequent period of spending restraint. Accounting for such spending reversals brings an otherwise standard new Keynesian model in line with the stylized facts of fiscal transmission, including the crowding-in of consumption and the 'puzzle' of real exchange rate depreciation. Time series evidence for the U.S. supports the empirical relevance of spending reversals.
- University of Cambridge United Kingdom
- Roma Tre University Italy
- University of Bonn Germany
- International Monetary Fund United States
- European University Institute Italy
Data analysis;Consumption;Economic models;Fiscal stability;Fiscal policy;Government expenditures;Public debt;Real interest rates;Real effective exchange rates;Sticky prices;Time series;real exchange rate, government spending, government spending shocks, private consumption,, real exchange rate, fiscal policy transmission, consumption, real exchange rate, real interest rate, sticky prices, monetary policy, ddc:330, Fiscal policy transmission, monetary policy, real interest rates, sticky prices, E61, consumption; Fiscal policy transmission; monetary policy; real exchange rate; real interest rates; sticky prices, consumption, E63, F41, jel: jel:E62, jel: jel:E63, jel: jel:F41
Data analysis;Consumption;Economic models;Fiscal stability;Fiscal policy;Government expenditures;Public debt;Real interest rates;Real effective exchange rates;Sticky prices;Time series;real exchange rate, government spending, government spending shocks, private consumption,, real exchange rate, fiscal policy transmission, consumption, real exchange rate, real interest rate, sticky prices, monetary policy, ddc:330, Fiscal policy transmission, monetary policy, real interest rates, sticky prices, E61, consumption; Fiscal policy transmission; monetary policy; real exchange rate; real interest rates; sticky prices, consumption, E63, F41, jel: jel:E62, jel: jel:E63, jel: jel:F41
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