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Do Fiscal Multipliers Vary with Different Character of Monetary-Fiscal Interactions?

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Listed:
  • Michal Bencik

    (National Bank of Slovakia)

Abstract

We investigate the fiscal multiplier in normal times and in the presence of a binding zero lower bound on interest rates with SVARs. We construct special shocks to interest rates that compensate their reactions to fiscal expansion and hold them constant and apply it to the Euro area and the United States. We find that for the former, the multiplier increases sharply in the ZLB, but it decreases in the ZLB for the latter. The sign of its change is determined by the coordination of fiscal and monetary policy i.e. whether the interest rates rise or drop in response to fiscal expansion. We applied this method to Slovak Republic as well and found that the change of the multiplier in ZLB in Slovak Republic is analogous to that in the Euro area.

Suggested Citation

  • Michal Bencik, 2017. "Do Fiscal Multipliers Vary with Different Character of Monetary-Fiscal Interactions?," Working and Discussion Papers WP 11/2017, Research Department, National Bank of Slovakia.
    • Handle: RePEc:svk:wpaper:1052
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    More about this item

    Keywords

    monetary-fiscal interactions; fiscal multipliers; zero lower bound; VAR models; compensating shocks;
    All these keywords.

    JEL classification:

    • 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
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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