Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212208 
Year of Publication: 
2012
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 5/2012
Publisher: 
Bank of Finland, Helsinki
Abstract: 
Using the standard real business cycle model with lump-sum taxes, we analyze the impact of fiscal policy when agents form expectations using adaptive learning rather than rational expectations (RE). The output multipliers for government purchases are significantly higher under learning, and fall within empirical bounds reported in the literature (in sharp contrast to the implausibly low values under RE). Effectiveness of fiscal policy is demonstrated during times of economic stress like the recent Great Recession. Finally it is shown how learning can lead to dynamics empirically documented during episodes of "fiscal consolidations."
Subjects: 
Government Purchases
Expectations
Output Multiplier
Fiscal Consolidation
Taxation
JEL: 
E62
D84
E21
E43
Persistent Identifier of the first edition: 
ISBN: 
978-952-462-788-7
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.