Great recession,slow recovery and muted fiscal policies in the US |
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| Institution: | 1. European Commission, Joint Research Centre (JRC), Italy;2. University College Dublin, Ireland;3. University of Milano Bicocca, Italy;1. Dipartimento di Economia, Metodi Quantitativi e Strategie di Impresa, University of Milan Bicocca, Piazza dell’Ateneo Nuovo 1, 20126 Milan, Italy;2. Dipartimento di Scienze Economiche e Aziendali, University of Pavia, via San Felice 5, 27100 Pavia, Italy |
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| Abstract: | This paper reconsiders the role of macroeconomic shocks and policies in determining the Great Recession and the subsequent recovery in the US. The Great Recession was mainly caused by a large demand shock and by the ZLB on the interest rate policy. In contrast with previous findings, the subsequent jobless recovery is explained by the ZLB effect. We estimate a fraction of Non-Ricardian households which is close to 50%, and obtain comparatively large fiscal multipliers. However we cannot detect a significant contribution of fiscal policies in stabilizing the US economy. For instance, the 2007–2009 large increase in expenditure-to-GDP ratios was apparently determined by the adverse non-policy shocks that caused the recession. |
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| Keywords: | DSGE Limited asset market participation Bayesian estimation US economy Business cycle Monetary policy Fiscal policy |
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