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Time-Varying Fiscal Multipliers in an Agent-Based Model with Credit Rationing

Listed author(s):
  • Mauro Napoletano

    (OFCE and SKEMA Business School, Sophia-Antipolis (France)
    Scuola Superiore Sant'Anna, Pisa (Italy))

  • Andrea Roventini

    (University of Verona (Italy)
    Scuola Superiore Sant'Anna, Pisa (Italy)
    OFCE and SKEMA Business School, Sophia-Antipolis (France))

  • Jean-Luc Gaffard

    (OFCE Sciences Po
    University of Nice Sophia Antipolis, France
    Skema Business School)

We build an agent-based model populated by households with heterogenous and time-varying financial conditions in order to study how fiscal multipliers can change over the business cycle and are a ected by the state of credit markets. We find that deficit-spending fiscal policy dampens the effect of bankruptcy shocks and lowers their persistence. Moreover, the size and dynamics of government spending multipliers are related to the degree and persistence of credit rationing in the economy. On the contrary, in presence of balanced-budget rules, output permanently falls below pre-shock levels and the ensuing multipliers fall below one and are much lower than the ones emerging from the deficit-spending policy. Finally, we show that different conditions in the credit market significantly affect the size and the evolution of fiscal multipliers.

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File URL: http://www.gredeg.cnrs.fr/working-papers/GREDEG-WP-2015-30.pdf
File Function: First version, 2015
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Paper provided by Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis in its series GREDEG Working Papers with number 2015-30.

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Length: 24 pages
Date of creation: Sep 2015
Handle: RePEc:gre:wpaper:2015-30
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