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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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Keywords: Government Spending Multipliers; Cyclicality; Financial Frictions;

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References

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  1. Simon Gilchrist & Egon Zakrajšek, 2011. "Credit Spreads and Business Cycle Fluctuations," NBER Working Papers 17021, National Bureau of Economic Research, Inc.
  2. Rüdiger Bachmann & Eric R. Sims, 2011. "Confidence and the Transmission of Government Spending Shocks," NBER Working Papers 17063, National Bureau of Economic Research, Inc.
  3. Vasco Cúrdia & Michael Woodford, 2009. "Credit frictions and optimal monetary policy," BIS Working Papers 278, Bank for International Settlements.
  4. Lawrence J. Christiano & Martin Eichenbaum & Sergio Rebelo, 2010. "When is the government spending multiplier large?," CQER Working Paper 2010-01, Federal Reserve Bank of Atlanta.
  5. Alan J. Auerbach & Yuriy Gorodnichenko, 2010. "Measuring the Output Responses to Fiscal Policy," NBER Working Papers 16311, National Bureau of Economic Research, Inc.
  6. 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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Citations

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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Cited by:
  1. Steven Fazzari & James Morley & Irina Panovska, 2013. "State-Dependent Effects of Fiscal Policy," Discussion Papers 2012-27B, School of Economics, The University of New South Wales.

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