An exploration of optimal stabilization policy
By: N. Gregory Mankiw, Matthew Weinzierl
Contributors: Weinzierl, Matthew; Harvard Business School
Series: Working paper / Harvard Business School -- 11-113; Working paper (Harvard Business School) -- 11-113.
Publisher: Harvard Business School
Published: 2011
Place of publication: [Boston]
Language: eng
Number of pages: 35
Description: This paper examines the optimal response of monetary and fiscal policy to a decline in aggregate demand. The theoretical framework is a two-period general equilibrium model in which prices are sticky in the short run and flexible in the long run. Policy is evaluated by how well it raises the welfare of the representative household. While the model has Keynesian features, its policy prescriptions differ significantly from textbook Keynesian analysis. Moreover, the model suggests that the commonly used "bang for the buck" calculations are potentially misleading guides for the welfare effects of alternative fiscal policies.
Notes: "May 2011" -- Publisher's website.

Includes bibliographical references.