State-dependent fiscal multipliers with preferences over safe assets

Ansgar Rannenberg

Journal of Monetary Economics, 2021, vol. 117, issue C, 1023-1040

Abstract: I examine the effect of fiscal policy at the zero lower bound when households have preferences over safe assets (POSA) parameterized consistent with microeconomic evidence on intertemporal choices and the macroeconomic elasticity between US government debt supply and bond yields. POSA loosen the link between household consumption and permanent-income, and imply a wealth effect from government bonds. Therefore, the multiplier of a permanent expenditure change increases. I show that these conclusions carry over to an estimated DSGE model. POSA improves the empirical fit of the model if the dataset includes forward interest rates on top of fiscal and macroeconomic data.

Keywords: Fiscal multiplier of temporary and persistent expenditure changes; Zero lower bound; Wealth in the utility function (search for similar items in EconPapers)
JEL-codes: E32 E52 E62 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (16)

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Working Paper: State dependent fiscal multipliers with preferences over safe assests (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:117:y:2021:i:c:p:1023-1040

DOI: 10.1016/j.jmoneco.2020.08.002

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