Rethinking Multipliers in a Globalized World
This paper uses the central tool of an investment-savings and monetary-policy model with an augmented Philips curve and presents a few extensions of that model to analyze the multiplier effects of macroeconomic policies in the United States. In doi...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100423133702 http://hdl.handle.net/10986/3764 |
| Summary: | This paper uses the central tool of an
investment-savings and monetary-policy model with an
augmented Philips curve and presents a few extensions of
that model to analyze the multiplier effects of
macroeconomic policies in the United States. In doing so,
the authors incorporate realistic assumptions in the model
related to the recent financial characteristics of the
global economy. The monetary policy reaction function embeds
a new augmented Taylor-rule incorporating housing and stock
prices and the credit lending rate. And the household
consumption and firm investment decisions incorporate
housing and stock assets and the credit market frictions.
The equilibrium income is derived and compared with the
actual nominal gross domestic product of the United States
for the period 1990 to 2009. More importantly, fiscal and
trade multipliers are derived and discussed. The main
finding is that government spending, tax cut, and trade
multipliers are relatively smaller in size when more
realistic features are incorporated in the model. The model
simulation shows that the model can track actual gross
domestic product reasonably well. The model should be
further improved before it could be used for policy exercises. |
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