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Financial Fragility and the Fiscal Multiplier
| Content Provider | Scilit |
|---|---|
| Author | Kwaak, Christiaan Van Der Wijnbergen, Sweder Van |
| Copyright Year | 2017 |
| Description | Journal: SSRN Electronic Journal We investigate the effectiveness of fiscal stimuli when banks are undercapitalized and have large holdings of government bonds subject to sovereign default risk. Deficit-financed government purchases then crowd out private expenditure and fiscal multipliers can turn negative. Crowding out increases for longer maturity bonds and higher sovereign default risk. We estimate a DSGE model with financial frictions for Spain and find that investment crowding out indeed leads to a negative cumulative fiscal multiplier. When monetary policy is exogenous, like at the ZLB or in a currency union, fiscal stimuli become more effective but multipliers are reduced when banks are undercapitalized. |
| Related Links | http://papers.tinbergen.nl/14004.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=2375129 |
| ISSN | 10914358 |
| e-ISSN | 15565068 |
| DOI | 10.2139/ssrn.2375129 |
| Journal | SSRN Electronic Journal |
| Language | English |
| Publisher | Elsevier BV |
| Publisher Date | 2017-09-19 |
| Access Restriction | Open |
| Subject Keyword | Journal: SSRN Electronic Journal Fiscal Multiplier Fiscal Stimuli Default Risk Sovereign Default |
| Content Type | Text |
| Resource Type | Article |
| Subject | Public Health, Environmental and Occupational Health Psychiatry and Mental Health |
