Working Paper: NBER ID: w17111
Authors: Thorsten Drautzburg; Harald Uhlig
Abstract: We quantify the fiscal multipliers in response to the American Recovery and Reinvestment Act (ARRA) of 2009. We extend the benchmark Smets-Wouters (2007) New Keynesian model, allowing for credit-constrained households, the zero lower bound, government capital and distortionary taxation. The posterior yields modestly positive short-run multipliers around 0.52 and modestly negative long-run multipliers around -0.42. The multiplier is sensitive to the fraction of transfers given to credit-constrained households, the duration of the zero lower bound and the capital. The stimulus results in negative welfare effects for unconstrained agents. The constrained agents gain, if they discount the future substantially.
Keywords: Fiscal Stimulus; Distortionary Taxation; Fiscal Multipliers; ARRA
JEL Codes: E62; E63; E65; H20; H62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ARRA (F35) | short-run economic activity (E44) |
| ARRA (F35) | long-run economic activity (R11) |
| fraction of transfers to credit-constrained households (G59) | fiscal multiplier (E62) |
| duration of the zero lower bound (ZLB) (E43) | fiscal multiplier (E62) |
| capital share (D33) | fiscal multiplier (E62) |
| fiscal stimulus (ARRA) (E62) | changes in GDP (E20) |
| fiscal stimulus (ARRA) (E62) | welfare effects for constrained agents (D69) |
| fiscal stimulus (ARRA) (E62) | welfare effects for unconstrained agents (D69) |