Great Recession, Slow Recovery and Muted Fiscal Policies in the US

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Albonico, Alice
Paccagnini, Alessia
Tirelli, Patrizio
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2017
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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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Journal of Economic Dynamics and Control

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Economic theory

Applied economics

Applied economics not elsewhere classified

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