Keynesian theory suggests that a reduction in government expenditure has a negative effect on private demand and therefore on output. Contrary, neoclassical theory argues that reduced public expenditure makes room for an expansion of the private sector and thus has a stimulating effect on the...

This paper analyzes the contribution of anticipated capital and labor tax shocks to business cycle volatility in an estimated New Keynesian DSGE model. While fiscal policy accounts for 12 to 20 percent of output variance at business cycle frequencies, the anticipated component hardly matters for...

We analyze whether government spending multipliers differ by the sign of the shock. Using aggregate historical U.S. data, we apply Ben Zeev's (2020) nonlinear diagnostic tests and find evidence of nonlinearities in the impulse response functions of both government spending and GDP. We then...

An impulse response is the dynamic average effect of an intervention across horizons. We use the well-known Kitagawa-Blinder-Oaxaca decomposition to explore a response's heterogeneity over time and over states of the economy. This can be implemented with a simple extension to the usual local...

We show that the largest increase in unemployment benefits in U.S. history had large spending impacts and small job-finding impacts. This finding has three implications. First, increased benefits were important for explaining aggregate spending dynamics--but not employment dynamics--during the...

Government spending shocks are frequently identified in quarterly time-series data by ruling outa contemporaneous response of government spending to other macroeconomic aggregates. We provide evidence that this assumption may not be too restrictive for U.S. annual time-series data. -- Government...

We present evidence that the high estimated MPCs from the leading household studies result in implausible macroeconomic counterfactuals. Using the 2008 tax rebate as a case study, we calibrate a standard medium-scale New Keynesian model with the estimated micro MPCs to construct counterfactual...

Amidst the recent resurgence of inflation, this paper investigates the interplay of corporate profits and income distribution in shaping inflation and aggregate demand within the New Keynesian framework. We derive a novel analytical condition for profits to be procyclical and inflationary....

We estimate the effects of government spending along the supply chain using disaggregated U.S. government procurement data. We first identify sectoral public spending shocks and combine them with input-output tables to measure upstream and downstream exposure through the production network. We...

Macroeconomics has increasingly adopted tools from the applied micro "credibility revolution" to estimate micro parameters that can inform macro questions. In this paper, we argue that researchers should take advantage of this confluence of micro and macro to take the credibility revolution one...