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

Tsoukis, Christopher

Authors



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. (2021). News, fiscal rules and the Keynesian multiplier in a DSGE model

Acceptance Date Jul 14, 2020
Publication Date Sep 14, 2021
Journal Journal of Development Economics and Finance
Print ISSN 2582-5194
Pages 61-91
Keywords DSGE model, news, fiscal policy rule, Keynesian multiplier
Publisher URL http://arfjournals.com/index.php?route=product/product/volumearticle&vissue_id=44&issue_id=64&product_id=411