An Exploration of Optimal Stabilization Policy / N. Gregory Mankiw, Matthew C. Weinzierl.

Format:

Book

Author/Creator:

Mankiw, N. Gregory.

Contributor:

Weinzierl, Matthew C.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17029.

NBER working paper series no. w17029

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

This paper examines the optimal response of monetary and fiscal policy to a decline in aggregate demand. The theoretical framework is a two-period general equilibrium model in which prices are sticky in the short run and flexible in the long run. Policy is evaluated by how well it raises the welfare of the representative household. While the model has Keynesian features, its policy prescriptions differ significantly from textbook Keynesian analysis. Moreover, the model suggests that the commonly used "bang for the buck" calculations are potentially misleading guides for the welfare effects of alternative fiscal policies.

Notes:

May 2011.

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