Time-varying fiscal multipliers in an agent based model with credit-rationing
Abstract
The authors build a simple agent-based model populated by households with heterogenous
and time-varying financial conditions in order to study how fiscal multipliers can change
over the business cycle and are affected by the state of credit markets. They find that
deficit-spending fiscal policy dampens the effect of bankruptcy shocks and lowers their
persistence. Moreover, the size and dynamics of government spending multipliers are
related to the degree and persistence of credit rationing in the economy. On the contrary,
in presence of balanced-budget rules, output permanently falls below pre-shock levels and
the ensuing multipliers fall below one and are much lower than the ones emerging from
the deficit-spending policy. Finally, the authors show that different conditions in the credit
market significantly affect the size and the evolution of fiscal multipliers
Domains
Economics and Finance
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