Logo
Munich Personal RePEc Archive

Does nominal wage stickiness affect fiscal multiplier in a two-agent new Keynesian model?

Ida, Daisuke and Okano, Mitsuhiro (2023): Does nominal wage stickiness affect fiscal multiplier in a two-agent new Keynesian model?

This is the latest version of this item.

[thumbnail of MPRA_paper_120936.pdf]
Preview
PDF
MPRA_paper_120936.pdf

Download (1MB) | Preview

Abstract

This study examines the effect of nominal wage stickiness on the fiscal multiplier in a two-agent new Keynesian model. We find that under fully flexible nominal wages, an increased share of liquidity-constrained (LC) consumers amplifies the fiscal multiplier in the cases of money-financed (MF) and debt-financed (DF) regimes. In the case of sticky nominal wages, an increase in the share of LC consumers drastically decreases the MF fiscal multiplier. We also demonstrate that even in the presence of nominal wage stickiness and LC consumers, the fiscal multiplier under an MF regime outperforms that under a DF regime. Furthermore, this paper shows that under the fiscal stimulus via a tax cut, an increased share of LC consumers magnifies the fiscal multiplier in the cases of MF and DF regimes. Finally, the degree of nominal price stickiness and the size of government spending are crucial in assessing the effect of fiscal stimulus on output.

Available Versions of this Item

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.