Outside the corridor: fiscal multipliers and business cycles into an agent-based model with liquidity constraints

Mauro Napoletano, Jean-Luc Gaffard and Andrea Roventini

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Abstract: We build an agent-based model to study how fiscal multipliers can change over the business cycle. Our approach considers the economy as a complex evolving system. In that, fiscal state-dependent multipliers are emergent disequilibrium phenomenon stemming from the interaction among an ecology of heterogeneous agents. We study fiscal multipliers in response to dfferent microeconomic shocks hitting the economy. We show that defficit-spending fiscal policy dampens the effect of a shock and lowers its persistence. Moreover, we show that the size and dynamics of the fiscal multi- plier is inversely related to the evolution of credit rationing in the aftermath of the shock. We also investigate the effects of two different balanced budget rules. In the first type of such experiments, government expenditure is constrained to be equal to tax revenues of each period. In the second one the tax rate is eventually raised to balance a given level of government expenditure. We show that fiscal multipliers are very low with both balanced-budget rules. Finally, we show that fiscal multipliers are higher into more leveraged economies.

Keywords: Keynesian economics; Fiscal Multipliers; Corridor E (search for similar items in EconPapers)
Date: 2014-09-01
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03460253v1
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Related works:
Working Paper: Outside the corridor: fiscal multipliers and business cycles into an agent-based model with liquidity constraints (2014)
Working Paper: Outside the corridor: fiscal multipliers and business cycles into an agent based models with liquidity constraints (2014)
Working Paper: Outside the corridor: fiscal multipliers and business cycles into an agent based models with liquidity constraints (2014)
Working Paper: Outside the corridor: fiscal multipliers and business cycles into an agent-based model with liquidity constraints (2014)
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