Cover IMF Working Papers
Fiscal Stimulus with Spending Reversals
Author: Gernot Müller, Giancarlo Corsetti, and Mr. Andre Meier
Series:
IMF Working Papers
Volume/Issue:
Volume 2009: Issue 106
Language:
English
Publication Date:
01 May 2009
DOI:
https://doi.org/10.5089/9781451872538.001
ISBN:
9781451872538
ISSN:
1018-5941
Pages:
39
Keywords:
WP; interest rate
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund