The endorsement of expansionary fiscal packages has often been based on the idea that large multipliers can contrast rising unemployment. Following the 2007-2008 crisis, various national governments around the globe have passed expansionary fiscal packages arguing that, with nominal interest rates at the zero lower bound, only a strong fiscal stimuli could help in fighting the consequences of a recession associated with rising unemployment. Is that really the case? We explore those issues in a New Keynesian model in which unemployment arises because of matching frictions, namely a labor demand friction. Additionally, we elaborate our results thoroughly by including endogenous participation decisions, something which brings along also a labor supply friction. In this environment we compare alternative fiscal packages, both in terms of target for the fiscal stimulus and in terms of source of financing. We consider two forms of government spending: a traditional increase in aggregate demand and an increase in firms’ hiring subsidy. Furthermore, various forms of government financing are considered, namely lump sum taxation versus distortionary taxation on labor. The analysis of the fiscal multiplier is initially conducted by using the calibrated model: this will help in guiding through the intuition on how the model functions. At last, we perform a Bayesian estimation of our DSGE model and comment on the observed size of the fiscal multipliers and on the statistical performance of the structural model.
The results from our calibrated model are as follows. Government expenditure in the form of aggregate demand stimuli produces low to nearly zero multipliers. Thus, in comparison to the standard New Keynesian model the expansionary effects of aggregate demand stimuli are much lower in a model with matching frictions. When distortionary taxation is used, multipliers become even negative. To understand the reason for this results we compare our model with an RBC model with non-walrasian labor markets. In such a model an increase in aggregate demand can be accommodated if firms post more vacancies. For this to become an equilibrium outcome, the continuation value of a filled vacancy needs to be higher than its steady state value, which in turn requires an increase in the stochastic dis-count factor and in current consumption. However, due to the crowding-out effect, current consumption falls, therefore implying a fall in current vacancy posting. The fall in vacancy posting brings about a fall in employment and output. Our results show, on the other side, that when the fiscal stimulus takes the form of subsidy to cost of posting vacancies, fiscal multipliers turn positive and become significantly large. A reduction in the cost of posting vacancies boosts job creation, which in turn induces an increase in employment and output. This effect is particularly powerful when the model features inefficient unemployment fluctuations, which occur to the extent that the Hosios condition does not hold. In this case indeed the fall in the cost of posting vacancies also reduces the distortions present in the economy, therefore moving the long run level of output toward the potential one. We re-examine our results by adding to the model an endogenous participation decision, which induces frictions on the labor supply and involuntary unemployment on top and above inefficient fluctuations in unemployment. Even in this case multipliers are smaller than one and turn negative with distortionary taxation, showing that the fiscal stimulus is ineffective in boosting workers’ participation decisions.
In January 2001, Pam Sanson found herself with a $300 bill that she could not pay. Desperate for some quick cash, she went to a payday lender and wrote a check for $375 to cover the $300 loan plus a $75 finance charge. Sanson left with the understanding that the lender would not deposit her check until she came back in two weeks to pay off its face value or paid $75 to extend the loan.
At the time, Sanson was confident that she would be able to pay off the loan the following payday. Her husband soon lost his job, however, and Sanson had to cut her work schedule at Wal-Mart because of surgery. These unexpected hardships left Sanson unable to pay off the interest which amounted to a 600% annual percentage rate or the principal on her loan. Sanson’s check bounced and USA PayDay threatened to send detectives to put her in jail. In just six months, Sanson accrued $900 in interest alone without having reduced the amount on her principal.
The prevalence of diabetes is increasing in all countries, at an alarming rate. The various factors that contribute to the rise in the prevalence of diabetes include genetic factors that determine body fat distribution, rapid changes in eating habits and lifestyles that are increasingly sedentary. Therefore, appropriate interventions in the form of weight reduction, changes in dietary habits and increased physical activity could help in preventing or delaying the onset of diabetes.
Plants or their extracts may also have a potential therapeutic role in the controlling of blood sugar level. Traditional health care systems, including herbal medicine are widespread in developing countries , and the care of diabetics has been influenced by a growing interest in complementary and alternative medicine. Indian herbs such as Momordica charantia, Pterocarpus marsupium, and Trigonella foenum greacum have been reported to have a hypoglycemic effect in type 2 diabetes, through stimulating or regenerating effects on beta cells, or through extrapancreatic effects.
