Fiscal multipliers in a small euro area economy: How big can they get in crisis times?

Gabriela Castro (), José Maria and Paulo Júlio
Authors registered in the RePEc Author Service: Ricardo Mourinho Félix ()

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: Using PESSOA, a small open economy DSGE model, we analyze the size of short-runfiscal multipliers associated with fiscal consolidation under two distinct alternative scenarios, viz "normal times" and "crisis times." The crisis times scenario embodies a higher share of hand-to-mouth households, stronger nominal rigidities, and more severe financial frictions, which purportedly better refflect the underlying economic environment during the "Great Recession." Results show that fiscal multipliers can be twice as large in crisis times, being approximately 2 for a government consumptionbased fiscal consolidation in the first year. One-year ahead effects are also substantially larger if this type of consolidation is performed in crisis times. Revenue-based fiscal consolidations are also more recessive in crisis times, though the differences against normal times are less pronounced.

JEL-codes: E62 F41 H62 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-dge, nep-eec, nep-mac, nep-opm, nep-pbe and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Working Paper: Fiscal Multipliers in a Small Euro Area Economy: How Big Can They Get in Crisis Times? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w201311

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