News, fiscal rules and the Keynesian multiplier in a DSGE model

Tsoukis, Christopher

Abstract

We extend the standard Smets-Wouters (2007) medium-sized DSGE model to analyse the effects of news and the Keynesian multiplier. News is modelled in a novel way compared to the literature, as revisions of expectations regarding future fundamentals. News-driven expectations changes augment both the consumption Euler equation and a fiscal rule, which is a secondary innovation of the paper. This news channel significantly improves the model fit to data. We calculate the fiscal multipliers which appear more Keynesian (with a higher effect on output and a positive effect on consumption, more persistent) than argued in much preceding literature.

Citation

Tsoukis, C. (2020). News, fiscal rules and the Keynesian multiplier in a DSGE model

• Acceptance Date: Jul 14, 2020
• Publication Date: Sep 14, 2020
• Publicly Available Date: Jun 21, 2023
• Journal: Journal of Development Economics and Finance
• Print ISSN: 2582-5194
• Pages: 61-91
• Keywords: DSGE model, news, fiscal policy rule, Keynesian multiplier
• Public URL: https://keele-repository.worktribe.com/output/417408
• Publisher URL: https://www.arfjournals.com/jdef/issue/64