Journal Article

The effectiveness of government spending in deep recessions: a New Keynesian perspective

Abstract: As the recent recession unfolded, policymakers in the U.S. and abroad employed both monetary and fiscal stabilization tools to help mitigate the downturn. One of the tools that can be used by fiscal policymakers is to actively purchase more goods and services: the idea being that the government?s demand can offset the weak demand by households and firms. For such a policy to be effective, one needs to know the extent to which government spending can stimulate the economy. One of the models frequently used by economists who study business cycles suggests that the answer depends very much on the extent to which monetary policy can be employed to stabilize the economy. In ?The Effectiveness of Government Spending in Deep Recessions: A New Keynesian Perspective,? (226 KB, 7 pages) Keith Kuester reviews the literature on the effectiveness of government spending during severe recessions.

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Business Review

Publication Date: 2011

Issue: Q3

Pages: 14-20