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Download fileWhy are fiscal multipliers asymmetric? The role of credit constraints
journal contribution
posted on 28.01.2019, 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.
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- Business and Economics
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- Economics