Fiscal multipliers under an interest rate peg of deterministic vs. stochastic duration
Abstract
This paper revisits the size of the fiscal multiplier. The experiment is a fiscal expansion under the assumption of a pegged nominal rate of interest. We demonstrate that a quantitatively important issue is the articulation of the exit from the policy experiment. If the monetary-fiscal expansion is stochastic with a mean duration of T periods, the fiscal multiplier can be unboundedly large. However, if the monetary-fiscal expansion is for a fixed T periods, the multiplier is much smaller.Download Info
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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 1215.Length:
Date of creation: 2012
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Handle: RePEc:fip:fedcwp:1215
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Keywords: Business cycles;Other versions of this item:
- Charles T Carlstrom & Timothy S Fuerst & Matthias Paustian, 2012. "Fiscal multipliers under an interest rate peg of deterministic vs. stochastic duration," Working Paper 1235, Federal Reserve Bank of Cleveland.
- NEP-ALL-2012-07-14 (All new papers)
- NEP-MAC-2012-07-14 (Macroeconomics)
References
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