Fiscal Multiplier in a Credit-Constrained New Keynesian Economy

Engin Kara and Jasmin Sin ()

Bristol Economics Discussion Papers from School of Economics, University of Bristol, UK

Abstract: Using a dynamic stochastic general equilibrium (DSGE) model that accounts for credit constraints, we study the effects of fiscal stimulus on the macroeconomy. We show that the presence of credit constraints results in larger fiscal multipliers than indicated by the standard DSGE models. If credit-crunch conditions persist, the multipliers become large enough for fiscal policy to be highly effective.

Keywords: DSGE models; Monetary Policy; Fiscal Policy; Liquidity Trap; Credit constraints (search for similar items in EconPapers)
JEL-codes: E32 E52 E58 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2012-12
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:bri:uobdis:12/634

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