This Paper studies how discretionary fiscal policy affects output volatility and the rate of economic growth. Using data on fifty-one countries we isolate five empirical regularities: (1) Governments that use often fiscal policy make their economies volatile; (2) The use of fiscal policy is...

We analyze empirically the cyclical behavior of fiscal policy among a group of 23 OECD countries. We introduce a framework to capture fiscal policy stance in a way that brings together automatic stabilizers and discretionary fiscal policy. We show that, for most countries, automatic changes in...

Does it matter, for the size of the government spending multiplier, which category of agents bears the brunt of the necessary adjustment in taxes? In an economy with heterogeneous agents and imperfect financial markets, the answer depends on whether or not New Keynesian features, such are price...

There has been a lot of interest recently in developing small-scale rule-based empirical macro models for the analysis of monetary policy. These models, based on the conventional view that inflation stabilization should be a concern of monetary policy only, have typically neglected the role of...

We document that an increase in government purchases generates a rise in consumption, the real and the product wage, and a fall in the markup. This evidence is robust across alternative empirical methodologies used to identify innovations in government spending (structural VAR vs. narrative...

Econometric evidence suggests that, in response to monetary policy shocks, durable and non-durable spending comove positively, and durable spending exhibits a much larger sensitivity to the policy shocks. A standard two-sector New Keynesian model with free borrowing persistently exhibits a...

This paper examines the relationship between fiscal policy and the current account, drawing on a larger country sample than in previous studies and using panel regressions, vector auto-regressions, and an analysis of large fiscal and external adjustments. On average, a strengthening in the...

We estimate the effects of fiscal policy on the labor market in US data. An increase in government spending of 1 percent of GDP generates output and unemployment multipliers respectively of about 1.2 per cent (at one year) and 0.6 percentage points (at the peak). Each percentage point increase...

We lay out a tractable model for fiscal and monetary policy analysis in a currency union, and analyse its implications for the optimal design of such policies. Monetary policy is conducted by a common central bank, which sets the interest rate for the union as a whole. Fiscal policy is...

Government spending at the zero lower bound (ZLB) is not necessarily welfare enhancing, even when its output multiplier is large. When government spending provides direct utility to the household, its optimal level is at most 0.5-1 percent of GDP for recessions of -4 percent; the numbers are...