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Pre- and Post-Global Financial Crisis Policy Multipliers#

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  • Ouliaris, Sam
  • Rochon, Celine

Abstract

This paper estimates the change in policy multipliers in the U.S. relative to their pre-2008 financial crisis levels. It also estimates the likely impact of the 2020 stimulus packages implemented to address COVID-19. The analysis is based on an augmented Blanchard-Perotti model that allows for the dynamic effects of shocks to the central bank balance sheet, real interest rates and debt levels on economic activity. The results suggest that expenditure multipliers have fallen post-2008, mostly because of higher government debt, implying that the effectiveness of fiscal policy has declined. They also suggest that the impact of quantitative easing is beneficial, but requires sizable interventions to have noticeable effects on real GDP. Because of rising debt stocks, dealing with a crisis is becoming more and more costly despite the current low interest rate environment.

Suggested Citation

  • Ouliaris, Sam & Rochon, Celine, 2021. "Pre- and Post-Global Financial Crisis Policy Multipliers#," Journal of Macroeconomics, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:jmacro:v:70:y:2021:i:c:s0164070421000690
    DOI: 10.1016/j.jmacro.2021.103370
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    Cited by:

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    2. Carmignani, Fabrizio, 2022. "The electoral fiscal multiplier," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 938-945.

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    More about this item

    Keywords

    fiscal multipliers; structural VAR; financial crisis (GFC); JEL Classification Numbers: E60; E62; E63; C51;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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