Fiscal Multipliers in Recessions

Fiscal Multipliers in Recessions

Standard business cycle models have difficulties generating large, state-dependent fiscal multipliers. Employing a model of costly financial intermediation based on Curdia–Woodford, we show that fiscal multipliers can be strongly state dependent: fiscal expansions during recessions may lead to multi...

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Veröffentlicht in:The Economic journal (London) 2016-02, Vol.126 (590), p.75-108
Hauptverfasser: Canzoneri, Matthew, Collard, Fabrice, Dellas, Harris, Diba, Behzad
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Sprache:eng
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Business cycles
Economic models
Fiscal policy
Recessions
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container_title The Economic journal (London)
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creator Canzoneri, Matthew
Collard, Fabrice
Dellas, Harris
Diba, Behzad
description Standard business cycle models have difficulties generating large, state-dependent fiscal multipliers. Employing a model of costly financial intermediation based on Curdia–Woodford, we show that fiscal multipliers can be strongly state dependent: fiscal expansions during recessions may lead to multiplier values exceeding two, while similar expansions during economic booms would produce values falling short of unity. This pattern obtains if the spread (the financial friction) is more sensitive to fiscal policy during recessions than during expansions, a feature that is present in the data. Our results are consistent with recent empirical work documenting the state contingency of multipliers.
doi_str_mv 10.1111/ecoj.12304
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source Wiley Journals; EBSCOhost Business Source Complete; JSTOR Archive Collection A-Z Listing; Oxford University Press Journals All Titles (1996-Current)
subjects Business cycles
Economic models
Fiscal policy
Recessions
title Fiscal Multipliers in Recessions
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