IDEAS home Printed from https://ideas.repec.org/p/fip/fedcwp/1620.html
   My bibliography  Save this paper

Fiscal Stimulus and Consumer Debt

Author

Listed:
  • Demyanyk, Yuliya

    (Federal Reserve Bank of Cleveland)

  • Loutskina, Elena

    (Federal Reserve Bank of Cleveland)

  • Murphy, Daniel P.

    (Darden School of Business, University of Virginia)

Abstract

In the aftermath of consumer debt-induced recession, policymakers have questioned whether fiscal stimulus is effective during the periods of high consumer indebtedness. This study empirically investigates this question. Using detailed data on Department of Defense spending for the 2006-2009 period, we document that the open-economy relative fiscal multiplier is higher in geographies with higher consumer indebtedness. The results suggest that fiscal policy can mitigate the adverse effect of consumer (over)leverage on real economic output during a recession. We then exploit detailed microdata to evaluate aggregate demand and aggregate supply-side economic mechanisms potentially underlying this result.

Suggested Citation

  • Demyanyk, Yuliya & Loutskina, Elena & Murphy, Daniel P., 2016. "Fiscal Stimulus and Consumer Debt," Working Paper 1620, Federal Reserve Bank of Cleveland, revised 01 Apr 2017.
  • Handle: RePEc:fip:fedcwp:1620
    as

    Download full text from publisher

    File URL: https://clevelandfed.org/newsroom-and-events/publications/working-papers/2016-working-papers/wp-1620-fiscal-stimulus-and-consumer-debt.aspx
    File Function: Full text
    Download Restriction: no

    File URL: https://www.clevelandfed.org/en/newsroom-and-events/publications/working-papers/2017-working-papers/wp-1620r-fiscal-stimulus-and-consumer-debt.aspx
    File Function: Full text
    Download Restriction: no

    More about this item

    Keywords

    Recession; fiscal stimulus;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedcwp:1620. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (4D Library). General contact details of provider: http://edirc.repec.org/data/frbclus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.