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Fiscal Multipliers in Recessions

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Author Info

  • Matthew Canzoneri
  • Fabrice Collard
  • Harris Dellas
  • Behzad Diba

Abstract

The Great Recession, and the fiscal response to it, has revived interest in the size of fiscal multipliers. Standard business cycle models have difficulties generating multipliers greater than one. And they also fail to produce any significant asymmetry in the size of the multipliers over the business cycle. In this paper we employ a variant of the Curdia-Woodford model of costly financial intermediation to show that fiscal multipliers are strongly countercyclical. In particular, they can take values exceeding two during recessions, declining to values below one during expansions.

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Bibliographic Info

Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp1204.

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Date of creation: May 2012
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Handle: RePEc:ube:dpvwib:dp1204

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Related research

Keywords: Government Spending Multipliers; Cyclicality; Financial Frictions;

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References

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  1. Bachmann, Rüdiger & Sims, Eric R., 2012. "Confidence and the transmission of government spending shocks," Journal of Monetary Economics, Elsevier, vol. 59(3), pages 235-249.
  2. Vasco Curdia & Michael Woodford, 2008. "Credit Frictions and Optimal Monetary Policy," Discussion Papers 0809-02, Columbia University, Department of Economics.
  3. Simon Gilchrist & Egon Zakrajsek, 2012. "Credit Spreads and Business Cycle Fluctuations," American Economic Review, American Economic Association, vol. 102(4), pages 1692-1720, June.
  4. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
  5. Boucekkine, Raouf, 1995. "An alternative methodology for solving nonlinear forward-looking models," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 711-734, May.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Fiscal Multipliers in Recessions
    by Christian Zimmermann in NEP-DGE blog on 2012-05-11 15:39:15
  2. Multiplicadores Fiscales Durante la Recesión
    by Alejandro Villagomez in Tintero Económico Diario on 2012-05-13 21:21:00

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