Fiscal Multipliers and Financial Crises

RePEc Short ID: pfa225
ORCID iD: 0000-0002-3759-2172

Faria-e-Castro, Miguel

doi:10.20955/wp.2018.023

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