Fiscal Multipliers: Liquidity Traps and Currency Unions
AbstractWe provide explicit solutions for government spending multipliers during a liquidity trap and within a fixed exchange regime using standard closed and open-economy models. We confirm the potential for large multipliers during liquidity traps. For a currency union, we show that self-financed multipliers are small, always below unity. However, outside transfers or windfalls can generate larger responses in out- put, whether or not they are spent by the government. Our solutions are relevant for local and national multipliers, providing insight into the economic mechanisms at work as well as the testable implications of these models.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18381.
Date of creation: Sep 2012
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Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-22 (All new papers)
- NEP-MAC-2012-09-22 (Macroeconomics)
- NEP-OPM-2012-09-22 (Open Economy Macroeconomics)
- NEP-PBE-2012-09-22 (Public Economics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- How a Greek drama became a global tragedy
by Mainly Macro in Mainly Macro on 2013-06-13 12:55:00
- Multipliers in a monetary union and at the ZLB
by Mainly Macro in Mainly Macro on 2013-06-16 08:06:00
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