Fiscal Multipliers and Financial Crises

Miguel Faria-e-Castro

The Review of Economics and Statistics, 2024, vol. 106, issue 3, 728-747

Abstract: I study the effects of the U.S. fiscal policy response to the Great Recession, accounting for both standard tools and financial sector interventions. A nonlinear model calibrated to the United States 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.

Date: 2024
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https://doi.org/10.1162/rest_a_01163
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Related works:
Working Paper: Fiscal Multipliers and Financial Crises (2022)
Working Paper: Fiscal Multipliers and Financial Crises (2017)
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