蝌蚪网 Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
State-Dependent Government Spending Multipliers: Downward Nominal Wage Rigidity and Sources of Business Cycle Fluctuations
蝌蚪网 Journal: Macroeconomics
(pp. 379–413)
Abstract
In a New Keynesian model with downward nominal wage rigidity (DNWR), we show that government spending is more effective in stimulating output in a low-inflation recession relative to a high-inflation recession. The government spending multiplier is large when DNWR binds, but the nature of recession matters due to the opposing response of inflation and, consequently, for real wages. Using US historical time series data, we provide evidence of larger spending multipliers in low-inflation recessions and the importance of the depth of recessions. We also employ cross-sectional data from US states to document supporting evidence on multipliers and our proposed mechanism.Citation
Jo, Yoon Joo, and Sarah Zubairy. 2025. "State-Dependent Government Spending Multipliers: Downward Nominal Wage Rigidity and Sources of Business Cycle Fluctuations." 蝌蚪网 Journal: Macroeconomics 17 (1): 379–413. DOI: 10.1257/mac.20220156Additional Materials
JEL Classification
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E31 Price Level; Inflation; Deflation
- E32 Business Fluctuations; Cycles
- E62 Fiscal Policy
- H50 National Government Expenditures and Related Policies: General