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Outside the corridor : fiscal multipliers and business cycles into an agent-based model with liquidity constraints

Listed author(s):
  • Mauro Napoletano

    (OFCE Sciences Po, Skema Business School)

  • Jean Luc Gaffard

    (OFCE Sciences Po, Skema Business School)

  • Andrea Roventini

    (Università du Verona,Scuola Superiore Sant'Anna, Pisa & OFCE Sophia Antipolis)

We build an agent-based model to study how scal multipliers can change over the business cycle. Our approach considers the economy as a complex evolving system.In that,scal state-dependent multipliers are emergent disequilibrium phenomenon stemming from the interaction among an ecology of heterogeneous agents. We study fiscal multipliers in response to di erent microeconomic shocks hitting the economy. We show that de cit-spending scal policy dampens the e ect of a shock and lowers its persistence. Moreover, we show that the size and dynamics of the scal multi-plier is inversely related to the evolution of credit rationing in the aftermath of the shock. We also investigate the effects of two different balanced budget rules.In the first type of such experiments, government expenditure is constrained to be equal to tax revenues of each period. In the second one the tax rate is eventually raised to balance a given level of government expenditure. We show that fiscal multipliers arevery low with both balanced-budget rules. Finally, we show that scal multipliersare higher into more leveraged economies.

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File URL: http://www.ofce.sciences-po.fr/pdf/dtravail/WP2014-16.pdf
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Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2014-16.

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Date of creation: Sep 2014
Handle: RePEc:fce:doctra:1416
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  1. repec:nbr:nberch:13342 is not listed on IDEAS
  2. Olivier J. Blanchard & Daniel Leigh, 2013. "Growth Forecast Errors and Fiscal Multipliers," American Economic Review, American Economic Association, vol. 103(3), pages 117-120, May.
  3. 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.
  4. Dosi, Giovanni & Fagiolo, Giorgio & Napoletano, Mauro & Roventini, Andrea, 2013. "Income distribution, credit and fiscal policies in an agent-based Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1598-1625.
  5. 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.
  6. Gauti B. Eggertsson & Paul Krugman, 2012. "Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1469-1513.
  7. Gatti, Domenico Delli & Guilmi, Corrado Di & Gaffeo, Edoardo & Giulioni, Gianfranco & Gallegati, Mauro & Palestrini, Antonio, 2005. "A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility," Journal of Economic Behavior & Organization, Elsevier, vol. 56(4), pages 489-512, April.
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