Fiscal Multipliers and Financial Crises

I study the effects of the U.S. fiscal policy response to the Great Recession, accounting for both standard tools and financial sector interventions. A nonlinear model calibrated to the United States allows me to study the state-dependent effects of different fiscal policies. I combine the model with data on the fiscal policy response to find that the fall in consumption would have been one-third larger in the absence of that response, for a cumulative loss of 7.18%. Transfers and bank recapitalizations yielded the largest fiscal multipliers through new transmission channels that arise from linkages between household and bank balance sheets.