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When is the Fiscal Multiplier High? A Comparison of Four Business Cycle Phases

Travis Berge, Maarten De Ridder and Damjan Pfajfar ()

No 2020-026, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We synthesize the recent, at times conflicting, empirical literature regarding whether fiscal policy is more effective during certain points in the business cycle. Evidence of state dependence in the multiplier depends critically on how the business cycle is defined. Estimates of the fiscal multiplier do not change when the unemployment rate is above or below its trend. However, we find that the multiplier is higher when the unemployment rate is increasing relative to when it is decreasing. This result holds using both a long time-series at the U.S. national level and for a panel of U.S. states.

Keywords: Fiscal multiplier; Countercyclical policy; Cross-sectional analysis; Local projections (search for similar items in EconPapers)
JEL-codes: C31 C32 E62 (search for similar items in EconPapers)
Pages: 32 p.
Date: 2020-03-27
New Economics Papers: this item is included in nep-gen, nep-mac and nep-ore
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https://www.federalreserve.gov/econres/feds/files/2020026pap.pdf (application/pdf)

Related works:
Journal Article: When is the fiscal multiplier high? A comparison of four business cycle phases (2021) Downloads
Working Paper: When is the Fiscal Multiplier High? A Comparison of Four Business Cycle Phases (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2020-26

DOI: 10.17016/FEDS.2020.026

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