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Fiscal Adjustments and Debt-Dependent Multipliers: Evidence from the U.S. Time Series

Author

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  • Iwata, Yasuharu
  • Iiboshi, Hirokuni

Abstract

Using sign restrictions within a time-varying parameter vector autoregressive (TVP-VAR) framework, we provide new time-series evidence of debt-dependent multipliers for the U.S. while simultaneously obtaining larger multipliers during recessions in line with previous studies. The Ricardian channel where households reduce consumption expecting larger scal adjustments is shown to be relevant for the debt-dependent multipliers. The TVP-VAR framework also allows us to observe changes in the magnitude of scal adjustments. We nd that the larger scal adjustments in the presence of rising indebtedness is the major driving force behind the smaller multipliers in the post-Volcker period rather than debt accumulation itself.

Suggested Citation

  • Iwata, Yasuharu & Iiboshi, Hirokuni, 2020. "Fiscal Adjustments and Debt-Dependent Multipliers: Evidence from the U.S. Time Series," Discussion paper series HIAS-E-103, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    • Handle: RePEc:hit:hiasdp:hias-e-103
    Note: December 22, 2020
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    More about this item

    Keywords

    Bayesian VARs; Time-varying parameters; Fiscal multipliers; Fiscal policy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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