in The Review of Economic Studies
July 2016; p ublished online February 2016 .
Journal Article. Subjects: Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; Prices, Business Fluctuations, and Cycles; Mobility, Unemployment, and Vacancies; Fiscal Policies and Behaviour of Economic Agents. 15535 words.
This article shows that equilibrium unemployment dynamics can significantly increase the efficacy of fiscal policy. In response to a shock that brings the economy into a liquidity trap, an...