Author(s)

GuanLin Su

Affiliation(s)

Hainan University, Haikou 570228, Hainan, China.

Corresponding Author

GuanLin Su

ABSTRACT

The thesis focuses on the influence of fiscal multipliers on economic output in the framework of New Keynesian, emphasizing the dominant position of government spending. By integrating the price concepts and wage stickiness, the analysis explores how fiscal policy may either stabilize or destabilize the economy, depending on the timing and nature of interventions. The research contrasts both short-term and long-term effects of government spending, considering interactions with monetary policy and the broader economic context. An insight into fiscal policy optimizing for enhancing stability of macroeconomic is provided in the thesis through both theoretical examination and case studies. The findings finally suggest that proper interventions do have ability to mitigate economic downturns and sustain the growth of output, making them essential tools for managing in modern macroeconomic.

KEYWORDS

New Keynesian model; Fiscal multipliers; Government spending; Economic output; Price stickiness; Business cycle

CITE THIS PAPER

GuanLin Su. Fiscal multipliers in the new Keynesian model: the influence of government spending on economic output. Journal of Trends in Financial and Economics. 2024, 1(1): 58-61. DOI: 10.61784/jtfe3011.

REFERENCES

[1] Woodford M. Interest and Prices: Foundations of a Theory of Monetary Policy. Princeton University Press, 2003.

[2] Eggertsson G B. What Fiscal Policy Is Effective at Zero Interest Rates? NBER Macroeconomics Annual, 2011, 25(1): 59-112.

[3] Gali J, Lopez-Salido J D, Valles J. Understanding the Effects of Government Spending on Consumption. Journal of the European Economic Association, 2007, 5(1): 227-270.

[4] Woodford M. Simple Analytics of the Government Expenditure Multiplier. American Economic Journal: Macroeconomics, 2011, 3(1): 1-35.

[5] Blanchard O, Perotti R. An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output. Quarterly Journal of Economics, 2002, 117(4): 1329-1368.

[6] Bernanke B S, Gertler M, Gilchrist S. The Financial Accelerator in a Quantitative Business Cycle Framework. Handbook of Macroeconomics, 1999, 1: 1341-1393.

[7] Auerbach A J, Gorodnichenko] Y.Measuring the Output Responses to Fiscal Policy. American Economic Journal: Economic Policy, 2012, 4(2): 1-27.

[8] Ramey V A. Can Government Purchases Stimulate the Economy? Journal of Economic Literature, 2011, 49(3): 673-685.

[9] Christiano L, Eichenbaum M, Rebelo S. When Is the Government Spending Multiplier Large? Journal of Political Economy, 2011, 119(1): 78-121.

[10] Blinder A S, Zandi M. The Financial Crisis: Lessons for the Next One. Center on Budget and Policy Priorities, 2015.

[11] Cogan J F, Cwik T, Taylor J B, et al. New Keynesian versus Old Keynesian Government Spending Multipliers. Journal of Economic Dynamics and Control, 2010, 34(3): 281-295.

[12] Blanchard O. Should We Reject the Natural Rate Hypothesis? Journal of Economic Perspectives, 2018, 32(1): 97-120.

[13] Chen S. China’s Response to the Global Financial Crisis: Implications for Economic Growth and Stability. China Economic Review, 2011, 22(2): 183-193.

[14] Romer C D. Fiscal Policy in the Crisis: Lessons and Policy Implications. Business Economics, 2012, 47(3): 158-165.

[15] Corsetti G, Meier A, Müller G J. Fiscal Stimulus with Spending Reversals. Review of Economics and Statistics, 2012, 94(4): 878-895.

[16] Carvalho F A, Valli M. Fiscal Multipliers in Brazil: A Quantitative Assessment. Economic Modelling, 2013, 30: 495-510.

[17] Ilzetzki E, Mendoza E G, Végh C A. How Big (Small?) Are Fiscal Multipliers? Journal of Monetary Economics, 2013, 60(2): 239-254.