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.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
