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The multiplier principle, credit-money and time

  • Gechert, Sebastian

We analyze the simple fiscal multiplier and extend it in terms of a credit-money framework and in terms of a time dimension, making it applicable to time series data. In order to take care of a credit-money framework, we complement the sources and uses of funds that are available along the multiplier process. In order to tackle the issue of time, we introduce a time component, which captures the time duration of a multiplier round. We argue that both attempts are incomplete on their own, but together they form a new version of the multiplier depending on the time duration of a multiplier period and a leakage that comprises net debt settlement and net accumulation of receivables. While the comparative-static stability condition of the multiplier can be dropped in this framework, our integrated multiplier reveals a dynamic stability condition for the multiplier process. Moreover, the integrated multiplier can be applied to evaluate income effects of transitory stimulus packages for a given time span. Multiplier effects are not calculated via identification of public spending shocks and GDP effects, but via determination of the behavioral parameters.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34648.

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Date of creation: 13 Jan 2012
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Handle: RePEc:pra:mprapa:34648
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  1. Fabio D'Orlando & Eleonora Sanfilippo, 2008. "Behavioral Foundations for the Keynesian Consumption Function," Working Papers 2008-05, Universita' di Cassino, Dipartimento di Scienze Economiche.
  2. Fritz Helmedag, 2008. "Income Effects Of Investments And Wages When Saving Rates Differ," Manchester School, University of Manchester, vol. 76(6), pages 708-719, December.
  3. Raberto, Marco & Teglio, Andrea & Cincotti, Silvano, 2012. "Debt, deleveraging and business cycles: An agent-based perspective," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6, pages 1-49.
  4. Jochen Hartwig, 2004. "Keynes's multiplier in a two-sectoral framework," Review of Political Economy, Taylor & Francis Journals, vol. 16(3), pages 309-334.
  5. Arestis, Philip & Howells, Peter, 1999. "The Supply of Credit Money and the Demand for Deposits: A Reply," Cambridge Journal of Economics, Oxford University Press, vol. 23(1), pages 115-19, January.
  6. Toralf Pusch & A. Rannberg, 2011. "Fiscal Spending Multiplier Calculations based on Input-Output Tables – with an Application to EU Members," IWH Discussion Papers 1, Halle Institute for Economic Research.
  7. Lavoie, Marc, 1999. "The Credit-Led Supply of Deposits and the Demand for Money: Kaldor's Reflux Mechanism as Previously Endorsed by Joan Robinson," Cambridge Journal of Economics, Oxford University Press, vol. 23(1), pages 103-13, January.
  8. L. Randall Wray, 2012. "Money in finance," Chapters, in: Handbook of Critical Issues in Finance, chapter 33, pages i-ii Edward Elgar.
  9. Thomas I. Palley, 1998. "The Twin Circuits: Aggregate Demand and the Expenditure Multiplier in a Monetary Economy," Review of Radical Political Economics, Union for Radical Political Economics, vol. 30(3), pages 91-101, September.
  10. Amitava Krishna Dutt, 2006. "Maturity, Stagnation And Consumer Debt: A Steindlian Approach," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 339-364, 07.
  11. Daniel Leigh & Andrea Pescatori & Jaime Guajardo, 2011. "Expansionary Austerity New International Evidence," IMF Working Papers 11/158, International Monetary Fund.
  12. Basil J. Moore, 1994. "The Demise of the Keynesian Multiplier: A Reply to Cottrell," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 17(1), pages 121-133, October.
  13. Burriel, Pablo & de Castro Fernández, Francisco & Garrote, Daniel & Gordo, Esther & Paredes, Joan & Pérez, Javier J., 2009. "Fiscal policy shocks in the euro area and the US: an empirical assessment," Working Paper Series 1133, European Central Bank.
  14. Roel Beetsma & Massimo Giuliodori, 2011. "The Effects of Government Purchases Shocks: Review and Estimates for the EU," Economic Journal, Royal Economic Society, vol. 121(550), pages F4-F32, February.
  15. Till van Treeck, 2007. "A Synthetic, Stock-Flow Consistent Macroeconomic Model of Financialisation," IMK Working Paper 06-2007, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  16. Victoria Chick, 1983. "Macroeconomics after Keynes: A Reconsideration of the General Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262530457, June.
  17. repec:oup:qjecon:v:117:y:2002:i:4:p:1329-1368 is not listed on IDEAS
  18. Thomas I. Palley, 1994. "Debt, Aggregate Demand, and the Business Cycle: An Analysis in the Spirit of Kaldor and Minsky," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 16(3), pages 371-390, April.
  19. Cynamon Barry Z. & Fazzari Steven M., 2008. "Household Debt in the Consumer Age: Source of Growth--Risk of Collapse," Capitalism and Society, De Gruyter, vol. 3(2), pages 1-32, October.
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