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The effects of government spending in a model with a borrowing constraint

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  • Yoonseok Choi

    (Chonnam National University)

Abstract

This paper explores the effects of government spending in a dynamic macroeconomic model that features a borrowing constraint as a financial friction. The main result from Bayesian estimation with U.S. data shows that dynamic response of output in the model with friction remains lower than that in the standard model without friction during transition period. This result translates into smaller output multipliers at all horizons. The takeaway from all the analyses is that considering financial frictions merits further analyses to provide a better understanding of the effects of various fiscal policies.

Suggested Citation

  • Yoonseok Choi, 2025. "The effects of government spending in a model with a borrowing constraint," Economics Bulletin, AccessEcon, vol. 45(1), pages 230-236.
    • Handle: RePEc:ebl:ecbull:eb-24-00214
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Financial friction; borrowing constraint; government spending; present-value multipliers;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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