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A Fiscal Stimulus and Jobless Recovery
Author:
Mr. Cristiano Cantore null

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Mr. Paul L Levine
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Mr. Giovanni Melina
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Series:
IMF Working Papers
Volume/Issue:
Volume 2013: Issue 017
Language:
English
Publication Date:
18 Jan 2013
DOI:
https://doi.org/10.5089/9781475595338.001
ISBN:
9781475595338
ISSN:
1018-5941
Pages:
53
Keywords:
WP; government spending; fiscal policy; deep habits; labor market search-match frictions; unemployment; CES production function; government spending expansion; jobless recovery; unemployment multiplier; CES technology; depreciation rate; Fiscal stimulus; Consumption
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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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund