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Why are fiscal multipliers asymmetric? The role of credit constraints

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journal contribution
posted on 28.01.2019 by Richard McManus, Gulcin Ozkan, Dawid Trzeciakiewicz
Recent empirical evidence strongly points to the state-dependence of fiscal multipliers which are larger in recessions than in expansions. Yet, standard business cycle models face great difficulty in producing such asymmetric fiscal policy effects. By incorporating endogenously binding collateral constraints into a medium scale DSGE model, we find that fiscal effectiveness can vary substantially across the business cycle. The key to our framework is the state-dependent nature of collateral constraints; binding in bad times while slack in good times, amplifying the effectiveness of fiscal policy and hence generating fiscal multipliers that are larger during recessions.

History

School

  • Business and Economics

Department

  • Economics

Published in

Economica

Citation

MCMANUS, R., OZKAN, G. and TRZECIAKIEWICZ, D., 2019. Why are fiscal multipliers asymmetric? The role of credit constraints. Economica, In Press.

Publisher

Wiley

Version

VoR (Version of Record)

Rights holder

© The authors

Publisher statement

This is an Open Access Article. It is published by Wiley under the Creative Commons Attribution-NonCommercial 4.0 International Licence (CC BY-NC). Full details of this licence are available at: https://creativecommons.org/licenses/by-nc/4.0/

Acceptance date

11/01/2019

Publication date

2020-04-01

ISSN

1468-0335

Language

en

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