The multiplier principle, credit-money and time

Sebastian Gechert

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze the simple fiscal multiplier and extend it in terms of a credit-money framework and in terms of a time dimension, making it applicable to time series data. In order to take care of a credit-money framework, we complement the sources and uses of funds that are available along the multiplier process. In order to tackle the issue of time, we introduce a time component, which captures the time duration of a multiplier round. We argue that both attempts are incomplete on their own, but together they form a new version of the multiplier depending on the time duration of a multiplier period and a leakage that comprises net debt settlement and net accumulation of receivables. While the comparative-static stability condition of the multiplier can be dropped in this framework, our integrated multiplier reveals a dynamic stability condition for the multiplier process. Moreover, the integrated multiplier can be applied to evaluate income effects of transitory stimulus packages for a given time span. Multiplier effects are not calculated via identification of public spending shocks and GDP effects, but via determination of the behavioral parameters.

Keywords: fiscal multiplier; credit-money; dynamic stability; stockflow relation (search for similar items in EconPapers)
JEL-codes: E12 E20 E62 (search for similar items in EconPapers)
Date: 2012-01-13
New Economics Papers: this item is included in nep-mac
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