Macro-JI Seminar - Adrien Auclert
Adrien Auclert (Stanford)
Title: The Intertemporal Keynesian Cross (with Matthew Rognlie and Ludwig Straub)
Read the paper here
We generalize the traditional, static Keynesian cross by deriving an intertemporal Keynesian cross for the dynamic output response to government spending and taxes in microfounded general equilibrium models. Intertemporal marginal propensities to consume (iMPCs) are sufficient statistics for this response, with fiscal multipliers depending only on the interaction between iMPCs and public deficits. We provide empirical estimates of iMPCs and argue that they are inconsistent with representative-agent or two-agent models, but can be matched by certain heterogeneous-agent models. Models that match empirical iMPCs imply larger and more persistent output responses to deficit-financed fiscal policy. In our preferred model, where households hold assets in liquid and illiquid accounts, the cumulative multiplier on deficit-financed government spending is above one, even in a richer environment where investment is crowded out and taxation is distortionary.