Pre- and Post-GFC Policy Multipliers

Balanced budget requirements lead to substantial pro-cyclicality in state government spending, with the stringency of a state's rules driving the pace at which it must adjust to shocks. We show that fiscal institutions can generate natural experiments in deficit-financed spending that are informative regarding fiscal stabilization policy. Alternative sources of variation in subnational fiscal policy often implicitly involve “windfall” financing, which precludes any effect of future debt or taxation on current consumption and investment. Consistent with a role for these “Ricardian” effects, our estimates are smaller than those in related studies, implying an on-impact multiplier below 1. (JEL C51, E32, E62, H72)

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Fiscal Policy Multipliers: The Role of Monopolistic Competition, Scale Economies, and Intertemporal Substitution in Labour Supply

International Economic Review ◽

10.2307/2527395 ◽

1998 ◽

Vol 39 (3) ◽

pp. 659 ◽

Cited By ~ 25

Author(s):

Ben J. Heijdra

Keyword(s):

Fiscal Policy ◽

Monopolistic Competition ◽

Labour Supply ◽

Scale Economies ◽

Intertemporal Substitution ◽

Policy Multipliers

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Pre- and Post-GFC Policy Multipliers

IMF Working Papers ◽

10.5089/9781513561097.001 ◽

2020 ◽

Vol 20 (237) ◽

Author(s):

Sam Ouliaris ◽

Celine Rochon

Keyword(s):

Central Bank ◽

Interest Rates ◽

Balance Sheet ◽

Quantitative Easing ◽

Dynamic Effects ◽

Real Gdp ◽

Rate Environment ◽

The Impact ◽

Policy Multipliers ◽

The U.S

This paper estimates the change in policy multipliers in the U.S. relative to their pre-2008 financial crisis levels using an augmented Blanchard-Perotti model to allow for the dynamic effects of shocks to the central bank balance sheet, real interest rates and debt levels on economic activity. Given the elevated debt level and significantly larger central bank balance sheet in the U.S. after 2008, the paper estimates the likely impact of new stimulus packages. We find that expenditure multipliers have fallen post-2008 crisis because of higher government debt, implying that the effectiveness of fiscal policy has declined. The analysis also investigates the impact of quantitative easing. The results suggest that it is beneficial, but requires sizable balance sheet interventions to lead to noticeable effects on real GDP. The results are used to assess the impact of the policy packages to address COVID-19. Because of rising debt stocks, dealing with a crisis is becoming more and more costly despite the current low interest rate environment.

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Fiscal Policy Multipliers in the EU During the Credit Crisis: A DSGE Analysis

SSRN Electronic Journal ◽

10.2139/ssrn.1985199 ◽

2010 ◽

Author(s):

Werner Röger ◽

Jan in't Veld

Keyword(s):

Fiscal Policy ◽

Credit Crisis ◽

Policy Multipliers ◽

The Eu

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Changing Patterns of Domestic and Cross-Border Fiscal Policy Multipliers in Europe and the US

SSRN Electronic Journal ◽

10.2139/ssrn.989168 ◽

2006 ◽

Cited By ~ 12

Author(s):

Agnès Bénassy-Quéré ◽

Jacopo Cimadomo

Keyword(s):

Fiscal Policy ◽

Cross Border ◽

The Us ◽

Changing Patterns ◽

Policy Multipliers

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Macroeconomic Switching Regimes and Monetary Policy in Canada

Applied Economics and Finance ◽

10.11114/aef.v4i4.2342 ◽

2017 ◽

Vol 4 (4) ◽

pp. 17 ◽

Cited By ~ 1

Author(s):

Ronald Henry Lange

Keyword(s):

Monetary Policy ◽

Central Bank ◽

Inflation Targeting ◽

Markov Switching ◽

Output Gap ◽

Impulse Response Functions ◽

Switching Regimes ◽

Long Run ◽

Nominal Anchor ◽

Policy Multipliers

This study examines the behaviour of monetary policy in Canada over the last 40 years using a Markov-switching VAR model of the macroeconomy. The Markov-switching estimates capture three continuous regimes that are interpreted as the ‘surprise’ regime from 1972Q1 to 1982Q2, the ‘recovery’ regime from 1982Q3 to 1991Q3 and the ‘target’ regime from 1991Q4 to 2014Q4. Monetary policy multipliers for the output gap are greater than one for all three regimes, suggesting that the central bank does not accommodate any expected changes in inflation over the long-run due to the domestic relationship between the output gap and future inflation. The long-run multipliers for inflation are equal to one in the surprise and recovery regimes, indicating that monetary policy also responds to offset inflation shocks. Overall, the policy multipliers and impulse response functions indicate a proactive central bank that responds systematically to movements in the output gap in order to control expected future inflation and to inflation surprises in the three regimes. The regime-dependent behaviour of monetary policy indicates a central bank pursuing an implicit form of inflation targeting as a means of achieving a nominal anchor for policy. The implicit inflation targets are consistent with historical episodes of inflation in Canada over the past 40 years.

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