Clearing Up the Fiscal Multiplier Morass

Leeper, Eric M.; Traum, Nora; Walker, Todd B.

doi:10.1257/aer.20111196

Cited by 232 publications

(101 citation statements)

References 70 publications

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“…Furthermore, as Ricardian equivalence (see Barro,[15]) holds in the model, it does not matter for equilibrium allocations whether the government balances its debt or not in each period. 7 See e.g., Leeper and Leith [104], and Leeper, Traum and Walker [105].…”

Section: Market Clearing Conditions and Monetary Policymentioning

confidence: 99%

Challenges for Central Banks’ Macro Models

Lindé

Smets

Wouters

2016

Handbook of Macroeconomics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Working Paper series presents reports on matters in the sphere of activities of the Riksbank that are considered to be of interest to a wider public. Terms of use: Documents inThe papers are to be regarded as reports on ongoing studies and the authors will be pleased to receive comments.The opinions expressed in this article are the sole responsibility of the author(s) and should not be interpreted as reflecting the views of Sveriges Riksbank. Challenges for Central Banks'Macro Models AbstractIn this paper we discuss a number of challenges for structural macroeconomic models in the light of the Great Recession and its aftermath. It shows that a benchmark DSGE model that shares many features with models currently used by central banks and large international institutions has di¢ culty explaining both the depth and the slow recovery of the Great Recession. In order to better account for these observations, the paper analyses three extensions of the benchmark model. First, we estimate the model allowing explicitly for the zero lower bound constraint on nominal interest rates. Second, we introduce time-variation in the volatility of the exogenous disturbances to account for the non-Gaussian nature of some of the shocks. Third and …nally, we extend the model with a …nancial accelerator and allow for time-variation in the endogenous propagation of …nancial shocks. All three extensions require that we go beyond the linear Gaussian assumptions that are standard in most policy models. We conclude that these extensions go some way in accounting for features of the Great Recession and its aftermath, but they do not su¢ ce to address some of the major policy challenges associated with the use of non-standard monetary policy and macroprudential policies. JEL Classi…cation: E52, E58

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Section: Market Clearing Conditions and Monetary Policymentioning

confidence: 99%

Challenges for Central Banks’ Macro Models

Lindé

Smets

Wouters

2016

Handbook of Macroeconomics

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“…At s = 0, the present value multiplier equals the impact multiplier. As in Leeper et al (2011), Table I compares the multiplier p-values at various horizons across the four model specifications. 6 The top panel of the table reports the probability that multipliers for output exceed unity at various horizons.…”

Section: Prior Predictive Analysismentioning

confidence: 99%

In Search of the Transmission Mechanism of Fiscal Policy in the Euro Area

Fève

Sahuc

2016

J of Applied Econometrics

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This paper applies the DSGE-VAR methodology to assess the size of fiscal multipliers in the data and the relative contributions of two transmission mechanisms of government spending shocks, namely hand-to-mouth consumers and Edgeworth complementarity. Econometric experiments show that a DSGE model with Edgeworth complementarity is a better representation of the transmission mechanism of fiscal policy as it yields dynamic responses close to those obtained with the flexible DSGE-VAR model (i.e. an impact output multiplier larger than one and a crowding-in of private consumption). The estimated share of hand-to-mouth consumers is too small to replicate the positive response of private consumption.

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“…1 This recent literature includes Hall (2009), Barro and Redlick (2011), Ramey (2011b), Ramey (2011a), Leeper, Traum, and Walker (2011), Coenen et al (2012), and Ravn, Schmitt-Grohe, and Uribe (2012).…”

Section: Introductionmentioning

confidence: 99%

“…4 To 2 We briefly discuss empirical estimates in Section 4. 3 Leeper, Traum, and Walker (2011) report simulated multipliers for a series of nested models in which New Keynesian models are specified as generalizations of the RBC model. 4 For discussion of the adaptive learning approach and extensive references, see, for example, , Sargent (2008) and Evans and Honkapohja (2013). make the comparison most cleanly we use the basic RBC model with lumpsum taxes and a standard calibration.…”

Section: Introductionmentioning

confidence: 99%