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The fiscal multiplier in a liquidity-constrained New Keynesian economy

Kara, Engin and Sin, Jasmin 2018. The fiscal multiplier in a liquidity-constrained New Keynesian economy. Scandinavian Journal of Economics 120 (1) , pp. 93-123. 10.1111/sjoe.12208

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Abstract

We study the effects of fiscal policy on the macroeconomy using a liquidity‐constrained New Keynesian model in which government bonds are liquid, and private financial assets are only partially liquid. We find that the fiscal multipliers in this economic environment are large enough for fiscal policy to be highly effective. In this model, a bond‐financed fiscal expansion can stimulate output because higher public borrowing improves liquidity by increasing the proportion of liquid assets in private‐sector wealth.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Publisher: Wiley
ISSN: 0347-0520
Date of Acceptance: 3 May 2016
Last Modified: 03 Mar 2021 12:45
URI: http://orca.cardiff.ac.uk/id/eprint/115411

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