CEU Electronic Theses and Dissertations, 2010
| Author | Kaszab, Lóránt |
|---|---|
| Title | Fiscal Policy Multipliers in a New Keynesian Model under Positive and Zero Nominal Interest Rate |
| Summary | This thesis calculates short and long-run fiscal policy multipliers of three types (government spending, sales tax and payroll tax) in a standard New Keynesian model. Each of them is conducted separately and assumed to be financed by lump-sum taxes. When solving for the multipliers analytically we use the method of undetermined coefficients. Otherwise, the models are solved numerically using Dynare. When nominal interest rate is positive government spending multiplier for non-separable preferences is higher than the one for separable preferences with the opposite being true for payroll and sales tax cut. However, when calculating long-run multipliers the difference between the size of multipliers coming from preference specifications disappears. In line with Christiano et al. (2009) and Eggertsson (2009) we found that government spending multiplier can be very high when the zero lower bound on the nominal interest rate binds. We also managed to reconcile the most important finding of Eggertsson (2009) who uses separable preferences that the payroll tax multiplier in case of zero nominal interest rate is negativ for non-separable preferences as well. However, in contrast to the finding of Eggertsson (2009) who uses separable preferences and assumes that the nominal rate is zero, we show that the sales tax cut is not as good as the increase in government spending for stimulating the economy when we use non-separable preferences and holding his other assumptions. In the same type of model extended with capital we found by fixing the nominal rate on constant level firstly for one and secondly for two years that the government spending multiplier is close or slightly above one but is definitely lower than the ones reported by Bernstein and Romer (2009). |
| Supervisor | Alessia Campolmi |
| Department | Economics MA |
| Full text | https://www.etd.ceu.edu/2010/kaszab_lorant.pdf |
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