Why do fiscal multipliers depend on fiscal positions?

Raju Huidrom, Ayhan Kose, Jamus Lim and Franziska Ohnsorge

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: The fiscal position can affect fiscal multipliers through two channels. Through the Ricardian channel, households reduce consumption in anticipation of future fiscal adjustments when fiscal stimulus is implemented from a weak fiscal position. Through the interest rate channel, fiscal stimulus from a weak fiscal position heightens investors’ concerns about sovereign credit risk, raises economy-wide borrowing cost, and reduces private domestic demand. We document empirically the relevance of these two channels using an Interactive Panel Vector Auto Regression model. We find that fiscal multipliers tend to be smaller when fiscal positions are weak than strong.

Keywords: Fiscal multipliers; fiscal position; state-dependency; Ricardian channel; interest rate channel; business cycle (search for similar items in EconPapers)
JEL-codes: E62 H50 H60 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2019-03
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (21)

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Related works:
Journal Article: Why do fiscal multipliers depend on fiscal Positions? (2020)
Working Paper: Why Do Fiscal Multipliers Depend on Fiscal Positions? (2019)
Working Paper: Why Do Fiscal Multipliers Depend on Fiscal Positions? (2019)
Working Paper: Why Do Fiscal Multipliers Depend on Fiscal Positions? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2019-28

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