The public debt multiplier

Alice Albonico, Guido Ascari and Alessandro Gobbi

Papers from arXiv.org

Abstract: We study the effects on economic activity of a pure temporary change in government debt and the relationship between the debt multiplier and the level of debt in an overlapping generations framework. The debt multiplier is positive but quite small during normal times while it is much larger during crises. Moreover, it increases with the steady state level of debt. Hence, the call for fiscal consolidation during recessions seems ill-advised. Finally, a rise in the steady state debt-to-GDP level increases the steady state real interest rate providing more room for manoeuvre to monetary policy to fight deflationary shocks.

Date: 2020-10, Revised 2020-11
New Economics Papers: this item is included in nep-dge and nep-mac
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Published in Journal of Economic Dynamics and Control,Volume 132, November 2021, 104204

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Journal Article: The public debt multiplier (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2010.15165

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