Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/202994
Authors: 
Huidrom, Raju
Kose, M. Ayhan
Lim, Jamus Jerome
Ohnsorge, Franziska
Year of Publication: 
2019
Series/Report no.: 
Working Paper 1905
Abstract: 
The fiscal position can affect fiscal multipliers through two channels. Through the Ricardian channel, households reduce consumption in anticipation of future fiscal adjustments when fiscal stimulus is implemented from a weak fiscal position. Through the interest rate channel, fiscal stimulus from a weak fiscal position heightens investors' concerns about sovereign credit risk, raises economy-wide borrowing cost, and reduces private domestic demand. We document empirically the relevance of these two channels using an Interactive Panel Vector Auto Regression model. We find that fiscal multipliers tend to be smaller when fiscal positions are weak than strong.
Subjects: 
Fiscal multipliers
fiscal position
state-dependency
Ricardian channel
interest rate channel
business cycle
JEL: 
E62
H50
H60
Document Type: 
Working Paper
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