Decomposing the Fiscal Multiplier / James S. Cloyne, Òscar Jordà, Alan M. Taylor.

Format:

Book

Author/Creator:

Cloyne, James S.

Contributor:

National Bureau of Economic Research.

Jordà, Òscar.

Taylor, Alan M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26939.

NBER working paper series no. w26939

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

The fiscal "multiplier" seeks to measure how many additional dollars of output are gained or lost for each dollar of fiscal expansion or contraction. In practice, the multiplier at any point in time depends on the monetary policy response and existing conditions in the economy. Using the IMF fiscal consolidations dataset for identification and a new decomposition-based approach, we show how to quantify the importance of these monetary-fiscal interactions. In the data, the fiscal multiplier varies considerably with monetary policy: it can be as small as zero, or as large as 2, depending on the monetary offset. More generally, we show how to decompose the typical macro impulse response function by extending local projections to carry out the well-known Kitagawa-Blinder-Oaxaca decomposition. This provides a convenient way to evaluate the effects of policy, state-dependence, time-variation, and the balance conditions for identification.

Notes:

Print version record

April 2020.