Working Paper Revision

Fiscal Multipliers and Financial Crises


Abstract: I study the effects of the US fiscal policy response to the Great Recession, accounting both for standard tools and financial sector interventions. A nonlinear model calibrated to the US allows me to study the state-dependent effects of different fiscal policies. I combine the model with data on the fiscal policy response to find that the fall in consumption would have been one-third larger in the absence of that response, for a cumulative loss of 7.18%. Transfers and bank recapitalizations yielded the largest fiscal multipliers through new transmission channels that arise from linkages between household and bank balance sheets.

Keywords: fiscal multipliers; financial crises; bailouts; nonlinear methods;

JEL Classification: E4; E6; G01; G28;

https://doi.org/10.20955/wp.2018.023

Status: Published in The Review of Economics and Statistics

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Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2022-01

Number: 2018-023

Note: Publisher DOI: https://doi.org/10.1162/rest_a_01163

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