Pre- and Post-GFC Policy Multipliers

35 Pages Posted: 5 Jan 2021

See all articles by Céline Rochon

Céline Rochon

International Monetary Fund (IMF)

Sam Ouliaris

International Monetary Fund (IMF)

Date Written: November 1, 2020

Abstract

This paper estimates the change in policy multipliers in the U.S. relative to their pre-2008 financial crisis levels using an augmented Blanchard-Perotti model to allow for the dynamic effects of shocks to the central bank balance sheet, real interest rates and debt levels on economic activity. Given the elevated debt level and significantly larger central bank balance sheet in the U.S. after 2008, the paper estimates the likely impact of new stimulus packages. We find that expenditure multipliers have fallen post-2008 crisis because of higher government debt, implying that the effectiveness of fiscal policy has declined. The analysis also investigates the impact of quantitative easing. The results suggest that it is beneficial, but requires sizable balance sheet interventions to lead to noticeable effects on real GDP. The results are used to assess the impact of the policy packages to address COVID-19. Because of rising debt stocks, dealing with a crisis is becoming more and more costly despite the current low interest rate environment.

JEL Classification: E60, E62, E63, C51

Suggested Citation

Rochon, Céline and Ouliaris, Sam, Pre- and Post-GFC Policy Multipliers (November 1, 2020). IMF Working Paper No. 20/237, Available at SSRN: https://ssrn.com/abstract=3758070

Céline Rochon (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Sam Ouliaris

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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