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How big (small?) are fiscal multipliers?

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Author Info

  • Ilzetzki, Ethan
  • Mendoza, Enrique G.
  • Végh, Carlos A.

Abstract

Contributing to the debate on the macroeconomic effects of fiscal stimuli, we show that the impact of government expenditure shocks depends crucially on key country characteristics, such as the level of development, exchange rate regime, openness to trade, and public indebtedness. Based on a novel quarterly dataset of government expenditure in 44 countries, we find that (i) the output effect of an increase in government consumption is larger in industrial than in developing countries; (ii) the fiscal multiplier is relatively large in economies operating under predetermined exchange rates but is zero in economies operating under flexible exchange rates; (iii) fiscal multipliers in open economies are smaller than in closed economies; (iv) fiscal multipliers in high-debt countries are negative.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 60 (2013)
Issue (Month): 2 ()
Pages: 239-254

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Handle: RePEc:eee:moneco:v:60:y:2013:i:2:p:239-254

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Web page: http://www.elsevier.com/locate/inca/505566

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  17. Roberto Perotti, 2007. "In Search of the Transmission Mechanism of Fiscal Policy," NBER Working Papers 13143, National Bureau of Economic Research, Inc.
  18. Ethan Ilzetzki & Carlos A. Vegh, 2008. "Procyclical Fiscal Policy in Developing Countries: Truth or Fiction?," NBER Working Papers 14191, National Bureau of Economic Research, Inc.
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  23. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1329-1368, November.
  24. Kim, Soyoung & Roubini, Nouriel, 2008. "Twin deficit or twin divergence? Fiscal policy, current account, and real exchange rate in the U.S," Journal of International Economics, Elsevier, vol. 74(2), pages 362-383, March.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Zbunjuju?e o multiplikatoru i Hrvatskoj
    by cronomy in Cronomy on 2013-01-17 07:13:39
  2. Guest Contribution: "Monetary Alchemy, Fiscal Science"
    by Menzie Chinn in Econbrowser on 2013-01-26 09:00:31
  3. Monetary Alchemy, Fiscal Science
    by jfrankel in Jeff Frankels Weblog on 2013-01-26 17:16:19
  4. Fiscal Multipliers – How big or small?
    by Amol Agrawal in Mostly Economics on 2010-11-03 10:32:17
  5. Osborne takes default risk
    by chris dillow in Stumbling and Mumbling on 2010-11-23 11:04:22
  6. Monetary or fiscal stimulus can help only if unemployment is cyclical; otherwise, if unemployment is structural expansionary policies will lead only to inflation. Careful recent analyses indicate that unemployment is mainly cyclical in the US
    by Blog Admin in British Politics and Policy at LSE on 2012-10-24 16:00:33
  7. Given the enormity of the short- and long-run fiscal challenges facing the US, the lack of policy detail from both presidential candidates is disappointing
    by Blog Admin in British Politics and Policy at LSE on 2012-10-25 13:00:36
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