Abstract
This study examines the effect of nominal wage stickiness on the fiscal multiplier in a two-agent new Keynesian model. We demonstrate that in the case of sticky nominal wages, an increased share of liquidity-constrained (LC) consumers decreases the money-financed (MF) fiscal multiplier. Our model shows that the fiscal multiplier under an MF regime outperforms that under a debt-financed (DF) regime. Under empirically plausible calibration, the benchmark model indicates that the MF government-spending multiplier is 1.5–3.0, whereas the DF multiplier is 0.8–1.5. We also find that an increased share of LC consumers magnifies the tax-cut multiplier in the cases of MF and DF regimes despite nominal wage stickiness.
Funding source: Japan Society for the Promotion of Science
Award Identifier / Grant number: JP20K01784
Award Identifier / Grant number: JP20K13531
Award Identifier / Grant number: JP24K04971
References
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Articles in the same Issue
- Frontmatter
- Advances
- Corporate Tax Rates, Allocative Efficiency, and Aggregate Productivity
- Contributions
- Endogenous Financial Friction and Growth
- Decomposing Structural Change
- Industry Impacts of US Unconventional Monetary Policy
- Monetary Policy Transmission in Canada – A High Frequency Identification Approach
- Child Labor, Corruption, and Development
- Inflation Uncertainty from Firms’ Perspective, Overconfidence and Credibility of Monetary Policy
- Does Nominal Wage Stickiness Affect Fiscal Multiplier in a Two-Agent New Keynesian Model?
- To Create or to Redistribute? That is the Question
- Estimating Expected Asset Returns with the Present Value Model of Consumption and Fed Forecasts
Articles in the same Issue
- Frontmatter
- Advances
- Corporate Tax Rates, Allocative Efficiency, and Aggregate Productivity
- Contributions
- Endogenous Financial Friction and Growth
- Decomposing Structural Change
- Industry Impacts of US Unconventional Monetary Policy
- Monetary Policy Transmission in Canada – A High Frequency Identification Approach
- Child Labor, Corruption, and Development
- Inflation Uncertainty from Firms’ Perspective, Overconfidence and Credibility of Monetary Policy
- Does Nominal Wage Stickiness Affect Fiscal Multiplier in a Two-Agent New Keynesian Model?
- To Create or to Redistribute? That is the Question
- Estimating Expected Asset Returns with the Present Value Model of Consumption and Fed Forecasts