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Why are fiscal multipliers asymmetric? The role of credit constraints
journal contribution
posted on 2019-01-28, 11:25 authored by Richard McManus, Gulcin Ozkan, Dawid TrzeciakiewiczDawid TrzeciakiewiczRecent 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
EconomicaVolume
88Issue
349Pages
32 - 69Citation
MCMANUS, R., OZKAN, G. and TRZECIAKIEWICZ, D., 2021. Why are fiscal multipliers asymmetric? The role of credit constraints. Economica, 88 (349), pp.32-69.Publisher
WileyVersion
- VoR (Version of Record)
Rights holder
© The authorsPublisher 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
2019-01-11Publication date
2020-04-01ISSN
0013-0427eISSN
1468-0335Publisher version
Language
- en