TY  - JOUR
AU  - Farmer,Roger E. A.
TI  - Fiscal Policy Can Reduce Unemployment: But There is a Less Costly and More Effective Alternative
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15021
PY  - 2009
Y2  - May 2009
UR  - http://www.nber.org/papers/w15021
L1  - http://www.nber.org/papers/w15021.pdf
N1  - Author contact info:
Roger Farmer
UCLA
Department of Economics
Box 951477
Los Angeles, CA 90095-1477
Tel: 310/825-6547
Fax: 310/825-9528
E-Mail: rfarmer@econ.ucla.edu
AB  - This paper uses a model with a continuum of equilibrium steady state unemployment rates to explore the effectiveness of fiscal policy. The existence of multiple steady state equilibria is explained by the presence of search and recruiting costs. I use the model to explain the current financial crisis as a shift to a high unemployment equilibrium, induced by the self-fulfilling beliefs of market participants about asset prices. I ask two questions. 1) Can fiscal policy help us out of the crisis? 2) Is there an alternative to fiscal policy that is less costly and more effective? The answer to both questions is yes. 
ER  -