2015/19 | LEM Working Paper Series | |
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Time-Varying Fiscal Multipliers in an Agent-Based Model with Credit Rationing |
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Mauro Napoletano, Andrea Roventini and Jean-Luc Gaffard |
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Keywords | ||
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fiscal multipliers, agent-based models, credit-rationing, balance-sheet recession, bankruptcy shocks
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JEL Classifications | ||
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E63, E21, C63
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Abstract | ||
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We build an 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. We find that
deficit-spending fiscal policy dampens the effect of bankruptcy shocks and lowers
their persistence. Moreover, the size and dynamics of government spending multipli-
ers 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, we show that different
conditions in the credit market significantly affect the size and the evolution of fiscal
multipliers.
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