Non-Linearity of Government Spending Multiplier: The Case of a Small Open Economy

Daniel Stodt

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: This study focuses on the non-linearity of fiscal multipliers in the Czech Republic and their dependence on the phase of the economic cycle. Using an STVAR model, the variability of fiscal multipliers across different economic phases is analyzed. The findings show that fiscal multipliers are higher during recessions (1–1.5) and lower during expansions (0–0.5), aligning with the general scientific consensus. The study also suggests that as the strength of an economic expansion gradually declines, multipliers gradually increase. These results emphasize the effectiveness of fiscal policy during recessions and its importance in stabilizing aggregate demand. However, the research highlights limitations caused primarily by the short available data series and the limited number of recessionary episodes in the Czech Republic, which may impact the generalizability of the findings.

Keywords: Business cycle; fiscal multipliers; STVAR (search for similar items in EconPapers)
JEL-codes: C32 E62 H30 (search for similar items in EconPapers)
Date: 2025-03
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2025/3

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