Outside the corridor: fiscal multipliers and business cycles into an agent-based model with liquidity constraints

Mauro Napoletano, Jean-Luc Gaffard and Andrea Roventini

No 2014-16, Documents de Travail de l'OFCE from Observatoire Francais des Conjonctures Economiques (OFCE)

Abstract: We build an agent-based model to study how scal multipliers can change over the business cycle. Our approach considers the economy as a complex evolving system.In that,scal state-dependent multipliers are emergent disequilibrium phenomenon stemming from the interaction among an ecology of heterogeneous agents. We study fiscal multipliers in response to di erent microeconomic shocks hitting the economy. We show that de cit-spending scal policy dampens the e ect of a shock and lowers its persistence. Moreover, we show that the size and dynamics of the scal multi-plier is inversely related to the evolution of credit rationing in the aftermath of the shock. We also investigate the effects of two different balanced budget rules.In the first type of such experiments, government expenditure is constrained to be equal to tax revenues of each period. In the second one the tax rate is eventually raised to balance a given level of government expenditure. We show that fiscal multipliers arevery low with both balanced-budget rules. Finally, we show that scal multipliersare higher into more leveraged economies.

Date: 2014-09
New Economics Papers: this item is included in nep-mac and nep-pbe
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Related works:
Working Paper: Outside the corridor: fiscal multipliers and business cycles into an agent based models with liquidity constraints (2014)
Working Paper: Outside the corridor: fiscal multipliers and business cycles into an agent-based model with liquidity constraints (2014)
Working Paper: Outside the corridor: fiscal multipliers and business cycles into an agent based models with liquidity constraints (2014)
Working Paper: Outside the corridor: fiscal multipliers and business cycles into an agent-based model with liquidity constraints (2014)
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