FISCAL POLICY MULTIPLIERS IN AN RBC MODEL WITH LEARNING
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 wit...
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| Veröffentlicht in: | Macroeconomic dynamics 2019-01, Vol.23 (1), p.240-283 |
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| creator | Mitra, Kaushik Evans, George W. Honkapohja, Seppo |
| description | 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, which is in sharp contrast to the implausibly low values under RE. Positive effects of fiscal policy are demonstrated during times of economic stress like the recent Great Recession. Finally, it is shown how learning can lead to consumption and investment dynamics empirically documented during some episodes of “fiscal consolidations.” |
| doi_str_mv | 10.1017/S1365100516001176 |
| format | Article |
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| ispartof | Macroeconomic dynamics, 2019-01, Vol.23 (1), p.240-283 |
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| source | Cambridge University Press Journals Complete |
| subjects | Economic models Economic theory Fiscal policy Macroeconomics |
| title | FISCAL POLICY MULTIPLIERS IN AN RBC MODEL WITH LEARNING |
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