LSE: Public lectures and events Rethinking keynesian fiscal stimulus
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Apr 2, 2025 In this engaging discussion, Valerie Ramey, Professor Emerita of Economics at UC San Diego and Senior Fellow at the Hoover Institute, revisits the role of Keynesian fiscal stimulus during economic crises. She explores how governmental spending has evolved, particularly during the Global Financial Crisis and the COVID-19 pandemic. Ramey analyzes the effectiveness of fiscal policies like tax rebates, infrastructure spending, and transfers, while challenging traditional views on their impact on consumption and debt, prompting a reconsideration of modern economic strategies.
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Cycles of Keynesian Fiscal Stimulus
- Keynesian fiscal stimulus rose due to theory, evidence, and events like WWII lifting economies out of depression.
- Its prominence fluctuated with new theories (e.g., permanent income hypothesis) and empirical findings.
Fall of Fiscal Stimulus
- Fiscal stimulus fell out of favor as monetary policy was found more nimble and effective.
- Fiscal multipliers were scarcely discussed in leading textbooks during the late 20th century.
Rebirth of Fiscal Stimulus
- The global financial crisis revived interest in fiscal stimulus due to interest rates hitting zero lower bound.
- Policymakers had limited knowledge of fiscal multipliers when implementing big stimulus packages.