Fiscal multipliers under an interest rate peg of deterministic vs. stochastic duration
Timothy Fuerst and
Matthias Paustian ()
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Matthias Paustian: Federal Reserve Bank of Cleveland
No 1215, Working Papers (Old Series) from Federal Reserve Bank of Cleveland
This paper revisits the size of the fiscal multiplier. The experiment is a fiscal expansion under the assumption of a pegged nominal rate of interest. We demonstrate that a quantitatively important issue is the articulation of the exit from the policy experiment. If the monetary-fiscal expansion is stochastic with a mean duration of T periods, the fiscal multiplier can be unboundedly large. However, if the monetary-fiscal expansion is for a fixed T periods, the multiplier is much smaller.
Keywords: Business; cycles (search for similar items in EconPapers)
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Working Paper: Fiscal multipliers under an interest rate peg of deterministic vs. stochastic duration (2012)
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