Government Spending Multiplier in a Model with Financial Friction
نویسنده
چکیده
During the recent financial crisis, huge fiscal stimulus packages were initiated and bold actions were taken by monetary authorities in many countries. Inspired by these, I explore the impact of fiscal stimulus when I take financial friction and liquidity trap into account. In particular, I investigate the fiscal multiplier in a dynamic stochastic general equilibrium model which is featured with financial accelerator mechanism and zero lower bound for nominal interest rate. And I find that the presence of financial friction (financial accelerator mechanism following from BGG (1999)) leads to an increase in fiscal multiplier. While this increase is mild, the binding zero nominal interest rate environment induces a significant increase in the impact of fiscal expansion.
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