Rethinking keynesian fiscal stimulus
Join us for the 2025 Economica-Phillips Lecture which will be delivered by Valerie Ramey.
Starting in the 1930s, Keynesian fiscal stimulus was the leading policy tool for fighting recessions, but it subsequently fell out of favor with the discovery of the permanent income hypothesis and evidence for the effectiveness of monetary policy. However, Keynesian fiscal stimulus re-emerged as an important policy tool when interest rates hit the effective lower bound during the Global Financial Crisis. Most policymakers and many academics now believe that temporary transfers, infrastructure spending, and other types of government purchases and tax programs are effective ways to fight recessions. This lecture revisits the evidence for this view. Using a variety of methods to check the plausibility of some of the leading estimates and models, it identifies cases in which these types of spending did not appear to stimulate the macroeconomy as intended. It also discusses the costs of fiscal stimulus, both in terms of the ratcheting up of the government debt-GDP ratio and the negative effects of distortionary tax finance on GDP.
Meet our speaker and chair
Valerie Ramey received her B.A. with a double major in Economics and Spanish from the University of Arizona, graduating summa cum laude. She went on to earn a Ph.D. in Economics from Stanford University. She is currently Professor of Economics at the University of California, San Diego and Research Associate of the National Bureau of Economic Research. She is a member of the American Academy of Arts and Sciences and a Fellow of the Econometric Society. She has served as co-editor of the American Economic Review, chair of the Economics Department at UCSD, and as a member of several National Science Foundation Advisory Panels and the Federal Economic Statistics Advisory Committee. She currently serves on the Panel of Economic Advisers for the Congressional Budget Office and on the NBER Business Cycle Dating Committee, and she is an associate editor of the Quarterly Journal of Economics and the Journal of Political Economy.
Wouter den Haan is a professor of economics at LSE, research fellow and programme director of the CEPR, and co-director of the Centre for Macroeconomics. Currently, his main areas of interest are business cycles, frictions in financial and labour markets, and numerical methods to solve models with a large number of heterogeneous agents.
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This event is the 2025 Economica-Phillips Lecture.
The Department of Economics (@LSEEcon) is one of the biggest and best in the world, with expertise across the full spectrum of mainstream economics. The Department’s research has been utilised in efforts to tackle major global challenges such as climate change; economic instability; economic development and growth; and national and global productivity and inequality, often catalysing profound shifts in policy debate and formulation.
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