Search Results
Working Paper
Fiscal Multipliers and Financial Crises
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 almost 50% 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 ...
Working Paper
Policy Paradoxes in the New Keynesian Model
The most common New-Keynesian model--with sticky-prices--has potentially implausible implications in a zero-lower bound environment. Fiscal and forward guidance multipliers can be implausibly large. Moreover, the sticky-price model implies that positive supply shocks, such as an increase in productivity, will lower production, and that increased price flexibility can exacerbate such a decline in output (as well as amplifying the effects of other shocks). These results are fragile and disappear under a plausible alternative to sticky prices--sticky information: Fiscal and monetary multipliers ...
Working Paper
Fiscal Multipliers and Financial Crises
What type of fiscal policy is most effective during a financial crisis? I study the macroeconomic effects of the US fiscal policy response to the Great Recession, accounting not only for standard tools such as government purchases and transfers but also for financial sector interventions such as bank recapitalizations and credit guarantees. A nonlinear quantitative model calibrated to the US allows me to study the state-dependent effects of different types of fiscal policies. I combine the model with data on the US fiscal policy response to find that the fall in aggregate consumption would ...
Journal Article
Fiscal Multiplier
Jargon Alert on the Fiscal Multiplier
Briefing
Are the Effects of Fiscal Policy Asymmetric?
Economic research on the size of the fiscal multiplier has assumed that the effects of changes in government spending are symmetric ? that is, they influence economic output to the same degree whether the change is an increase or a decrease. Richmond Fed research indicates that this is not the case; the fiscal multiplier does vary according to the direction of the fiscal action and also varies with the stage of the economic cycle. This finding sheds light on likely outcomes of fiscal policies and helps account for inconsistent estimates of the multiplier in the literature.
Working Paper
Fiscal Multipliers and Financial Crises
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 ...
Working Paper
Fiscal Stimulus Under Average Inflation Targeting
The stimulus effects of expansionary fiscal policy under average inflation targeting (AIT) depends on both monetary and fiscal policy regimes. AIT features an inflation makeup under the monetary regime, but not under the fiscal regime. In normal times, AIT amplifies the short-run fiscal multipliers under both regimes while mitigating the cumulative multiplies due to intertemporal substitution. In a zero-lower-bound (ZLB) period, AIT reduces fiscal multipliers under a monetary regime by shortening the duration of the ZLB through expected inflation makeup. Under the fiscal regime, AIT has a ...
Report
Identifying shocks via time-varying volatility
An n-variable structural vector auto-regression (SVAR) can be identified (up to shock order) from the evolution of the residual covariance across time if the structural shocks exhibit heteroskedasticity (Rigobon (2003), Sentana and Fiorentini (2001)). However, the path of residual covariances can only be recovered from the data under specific parametric assumptions on the variance process. I propose a new identification argument that identifies the SVAR up to shock orderings using the autocovariance structure of second moments of the residuals, implied by an arbitrary stochastic process for ...
Working Paper
Fiscal Multipliers and Financial Crises
What type of fiscal policy is most effective during a financial crisis? I study the macroeconomic effects of the US fiscal policy response to the Great Recession, accounting not only for standard tools such as government purchases and transfers but also for financial sector interventions such as bank recapitalizations and credit guarantees. A nonlinear quantitative model calibrated to the US allows me to study the state-dependent effects of different types of fiscal policies. I combine the model with data on the US fiscal policy response to find that the fall in aggregate consumption would ...
Working Paper
The Nonlinear Effects of Fiscal Policy
We argue that the fiscal multiplier of government purchases is nonlinear in the size of the spending shock. In particular, the multiplier is increasing in the spending shock, with more expansionary government spending shocks generating larger multipliers and more contractionary shocks generating smaller multipliers. We document that empirically this holds true across time, countries and types of shocks. We then propose a neoclassical mechanism that hinges on the relationship between fiscal shocks, their form of financing, and the response of labor supply across the wealth distribution. A ...