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Project Description

Summary:  View help for Summary We build a medium-scale DSGE model and calibrate it to fit the main macroeconomic variables during the US Great Recession. Using it to evaluate the welfare effects of increasing government consumption at the zero lower bound beyond what was actually observed in the data, we reach three main results. First, the increase in government consumption after 2008, albeit small in present value terms, was close to optimal. Second, frontloading the same stimulus would have been welfare-improving. Third, larger welfare effects occur in our model for parameter values implying either large welfare costs of modest recessions (e.g., high consumption curvature), or outright large recessions.

Scope of Project

JEL Classification:  View help for JEL Classification
      E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
      E32 Business Fluctuations; Cycles
      E43 Interest Rates: Determination, Term Structure, and Effects
      E62 Fiscal Policy
      H50 National Government Expenditures and Related Policies: General


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