Projects per year
Abstract
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."
Original language | English |
---|---|
Publisher | University of St Andrews |
Number of pages | 32 |
Publication status | Published - Jan 2012 |
Publication series
Name | Centre for Dynamic Macroeconomic Analysis, Working Paper 1202 |
---|---|
Publisher | School of Economics and Finance, University of St Andrews |
Keywords
- Government purchases
- Expectations
- Output multiplier
- Fiscal consolidation
- Taxation
Fingerprint
Dive into the research topics of 'Fiscal policy and learning'. Together they form a unique fingerprint.Projects
- 1 Finished
-
Macroeconomic Policy Changes: Macroeconomic policy changes and adaptive learning
Mitra, K. (PI)
Economic & Social Research Council
1/10/10 → 30/09/13
Project: Standard