Pre- and Post-GFC Policy Multipliers

November 13, 2020

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Format: Chicago

Sam Ouliaris, and Celine Rochon. Pre- and Post-GFC Policy Multipliers, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper estimates the change in policy multipliers in the U.S. relative to their pre-2008 financial crisis levels using an augmented Blanchard-Perotti model to allow for the dynamic effects of shocks to the central bank balance sheet, real interest rates and debt levels on economic activity. Given the elevated debt level and significantly larger central bank balance sheet in the U.S. after 2008, the paper estimates the likely impact of new stimulus packages. We find that expenditure multipliers have fallen post-2008 crisis because of higher government debt, implying that the effectiveness of fiscal policy has declined. The analysis also investigates the impact of quantitative easing. The results suggest that it is beneficial, but requires sizable balance sheet interventions to lead to noticeable effects on real GDP. The results are used to assess the impact of the policy packages to address COVID-19. Because of rising debt stocks, dealing with a crisis is becoming more and more costly despite the current low interest rate environment.

Subject: Economic sectors, Financial crises

Keywords: Financial crisis (GFC), Fiscal multipliers, Structural VAR

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/237
Stock No:

WPIEA2020237
ISBN:

9781513561097
ISSN:

1018-5941

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