The Euro-Area Government Spending Multiplier at the Effective Lower Bound
The Euro-Area Government Spending Multiplier at the Effective Lower Bound

Author: Adalgiso Amendola

Publisher: International Monetary Fund

Published: 2019-06-28

Total Pages: 58

ISBN-13: 1498322913

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We build a factor-augmented interacted panel vector-autoregressive model of the Euro Area (EA) and estimate it with Bayesian methods to compute government spending multipliers. The multipliers are contingent on the overall monetary policy stance, captured by a shadow monetary policy rate. In the short run (one year), whether the fiscal shock occurs when the economy is at the effective lower bound (ELB) or in normal times does not seem to matter for the size of the multiplier. However, as the time horizon increases, multipliers diverge across the two regimes. In the medium run (three years), the average multiplier is about 1 in normal times and between 1.6 and 2.8 at the ELB, depending on the specification. The difference between the two multipliers is distributed largely away from zero. More generally, the multiplier is inversely correlated with the level of the shadow monetary policy rate. In addition, we verify that EA data lend support to the view that the multiplier is larger in periods of economic slack, and we show that the shadow rate and the state of the business cycle are autonomously correlated with its size. The econometric approach deals with several technical problems highlighted in the empirical macroeconomic literature, including the issues of fiscal foresight and limited information.

How Big (Small?) are Fiscal Multipliers?
How Big (Small?) are Fiscal Multipliers?

Author: Ethan Ilzetzki

Publisher: International Monetary Fund

Published: 2011-03-01

Total Pages: 68

ISBN-13: 1455218022

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We contribute to the intense debate on the real effects of fiscal stimuli by showing that the impact of government expenditure shocks depends crucially on key country characteristics, such as the level of development, exchange rate regime, openness to trade, and public indebtedness. Based on a novel quarterly dataset of government expenditure in 44 countries, we find that (i) the output effect of an increase in government consumption is larger in industrial than in developing countries, (ii) the fisscal multiplier is relatively large in economies operating under predetermined exchange rate but zero in economies operating under flexible exchange rates; (iii) fiscal multipliers in open economies are lower than in closed economies and (iv) fiscal multipliers in high-debt countries are also zero.

Fiscal Policy after the Financial Crisis
Fiscal Policy after the Financial Crisis

Author: Alberto Alesina

Publisher: University of Chicago Press

Published: 2013-06-25

Total Pages: 596

ISBN-13: 022601844X

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The recent recession has brought fiscal policy back to the forefront, with economists and policy makers struggling to reach a consensus on highly political issues like tax rates and government spending. At the heart of the debate are fiscal multipliers, whose size and sensitivity determine the power of such policies to influence economic growth. Fiscal Policy after the Financial Crisis focuses on the effects of fiscal stimuli and increased government spending, with contributions that consider the measurement of the multiplier effect and its size. In the face of uncertainty over the sustainability of recent economic policies, further contributions to this volume discuss the merits of alternate means of debt reduction through decreased government spending or increased taxes. A final section examines how the short-term political forces driving fiscal policy might be balanced with aspects of the long-term planning governing monetary policy. A direct intervention in timely debates, Fiscal Policy after the Financial Crisis offers invaluable insights about various responses to the recent financial crisis.

The Impact of r-g on the Euro-Area Government Spending Multiplier
The Impact of r-g on the Euro-Area Government Spending Multiplier

Author: Mario di Serio

Publisher: International Monetary Fund

Published: 2021-02-12

Total Pages: 30

ISBN-13: 1513569511

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We compute government spending multipliers for the Euro Area (EA) contingent on the interestgrowth differential, the so-called r-g. Whether the fiscal shock occurs when r-g is positive or negative matters for the size of the multiplier. Median estimates vary conditional on the specification, but the difference between multipliers in the negative and positive r-g regimes differs systematically from zero with very high probability. Over the medium run (5 years), median cumulated multipliers range between 1.22 and 1.77 when r-g is negative, and between 0.51 and 1.26 when r-g is positive. We show that the results are not driven by the state of the business cycle, the monetary policy stance, or the level of government debt, and that the multiplier is inversely correlated with r-g. The calculations are based on the estimates of a factor-augmented interacted panel vector-autoregressive model. The econometric approach deals with several technical problems highlighted in the empirical macroeconomic literature, including the issues of fiscal foresight and limited information.

Managing the Sovereign-Bank Nexus
Managing the Sovereign-Bank Nexus

Author: Mr.Giovanni Dell'Ariccia

Publisher: International Monetary Fund

Published: 2018-09-07

Total Pages: 54

ISBN-13: 1484359623

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This paper reviews empirical and theoretical work on the links between banks and their governments (the bank-sovereign nexus). How significant is this nexus? What do we know about it? To what extent is it a source of concern? What is the role of policy intervention? The paper concludes with a review of recent policy proposals.

The Effectiveness of Fiscal Policy in Stimulating Economic Activity
The Effectiveness of Fiscal Policy in Stimulating Economic Activity

Author: Richard Hemming

Publisher: International Monetary Fund

Published: 2002-12

Total Pages: 62

ISBN-13:

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This paper reviews the theoretical and empirical literature on the effectiveness of fiscal policy. The focus is on the size of fiscal multipliers, and on the possibility that multipliers can turn negative (i.e., that fiscal contractions can be expansionary). The paper concludes that fiscal multipliers are overwhelmingly positive but small. However, there is some evidence of negative fiscal multipliers.

Das Public Kapital
Das Public Kapital

Author: Selim Elekdag

Publisher: International Monetary Fund

Published: 2014-12-17

Total Pages: 45

ISBN-13: 1498393675

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Given the backdrop of pressing infrastructure needs, this paper argues that higher German public investment would not only stimulate domestic demand in the near term and reduce the current account surplus, but would also raise output over the longer-run as well as generate beneficial regional spillovers. While time-to-build delays can weaken the impact of the stimulus in the short-run, the expansionary effects of higher public investment are substantially strengthened with an accommodative monetary policy stance—as is typical during periods of economic slack. The current low-interest rate environment presents a window of opportunity to finance higher public investment at historically favorable rates.

Monetary Policy Rules
Monetary Policy Rules

Author: John B. Taylor

Publisher: University of Chicago Press

Published: 2007-12-01

Total Pages: 460

ISBN-13: 0226791262

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This timely volume presents the latest thinking on the monetary policy rules and seeks to determine just what types of rules and policy guidelines function best. A unique cooperative research effort that allowed contributors to evaluate different policy rules using their own specific approaches, this collection presents their striking findings on the potential response of interest rates to an array of variables, including alterations in the rates of inflation, unemployment, and exchange. Monetary Policy Rules illustrates that simple policy rules are more robust and more efficient than complex rules with multiple variables. A state-of-the-art appraisal of the fundamental issues facing the Federal Reserve Board and other central banks, Monetary Policy Rules is essential reading for economic analysts and policymakers alike.

The Keynesian Multiplier
The Keynesian Multiplier

Author: Claude Gnos

Publisher: Routledge

Published: 2008-05-25

Total Pages: 398

ISBN-13: 1134361939

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The multiplier is a central concept in Keynesian and post-Keynesian economics. It is largely what justifies activist full-employment fiscal policy: an increase in fiscal expenditures contributing to multiple rounds of spending, thereby financing itself. Yet, while a copingstone of post-Keynesian theory, it is not universally accepted by

How Loose, How Tight? A Measure of Monetary and Fiscal Stance for the Euro Area
How Loose, How Tight? A Measure of Monetary and Fiscal Stance for the Euro Area

Author: Nicoletta Batini

Publisher: International Monetary Fund

Published: 2020-06-05

Total Pages: 75

ISBN-13: 1513546082

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This paper builds a model-based dynamic monetary and fiscal conditions index (DMFCI) and uses it to examine the evolution of the joint stance of monetary and fiscal policies in the euro area (EA) and in its three largest member countries over the period 2007-2018. The index is based on the relative impacts of monetary and fiscal policy on demand using actual and simulated data from rich estimated models featuring also financial intermediaries and long-term government debt. The analysis highlights a short-lived fiscal expansion in the aftermath of the Global Financial Crisis, followed by a quick tightening, with monetary policy left to be the “only game in town” after 2013. Individual countries’ DMFCIs show that national policy stances did not always mirror the evolution of the aggregate stance at the EA level, due to heterogeneity in the fiscal stance.