Fiscal Shocks and Real Rigidities

Abstract

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Pre-announcement and timing: The effects of a government expenditure shock

“…The posterior mean of the calvo parameter (ϑ = 0.74) is estimated slightly higher than in a recent study by Smets and Wouters (2007), who estimated it at about (ϑ = 0.66). However, the relatively high estimate of the price stickiness parameter is consistent with a characteristic of the DSGE model pointed out by Furlanetto and Seneca (2009): the DSGE model employed obeys many real frictions, which are present in the DSGE model of Smets and Wouters (2007). Once those real rigidities were included, the resulting nominal frictions would have been estimated at lower values.…”

Fiscal stimulus and the role of wage rigidity

“…In Furlanetto and Seneca (2009), we show that real rigidities (in the form of habit persistence, firm-specific capital and Kimball demand curves) can dramatically reduce the percentage of ROT consumers in the model. We can obtain the same consumption multiplier as in GLV (2007) with only 25% of constrained agents, instead of 50%, and two quarters of price stickiness, instead of four.…”

“…Models with ROT agents have difficulty in generating hump-shaped responses and the introduction of habit persistence is not sufficient to generate these effects (cf. Seneca, 2009 andCaldara andKamps, 2008). In the third case, we use a rather aggressive rule with no interest rate smoothing (in this case r r equal to 0, f p equal to 2 and f y equal to 0.6, dotted line).…”

Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation

“…Erceg, Guerrieri, and Gust (2006) in their Sigma model calibrate the share of RT consumers at 50% in order to replicate the dynamic performance of the Federal Reserve Board Global Model. Galì, López‐Salido, and Vallés (2007) as well as Furlanetto and Seneca (2009) show that RT consumers can rationalize the empirically observed response of aggregate consumption to public spending shocks. In Furlanetto and Seneca (2011), the RT hypothesis helps to account for recent empirical evidence on productivity shocks.…”