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.

More Research From These Scholars

BFI Working Paper Mar 1, 2009

Unit Roots in White Noise

Alexei Onatski
Topics:  Fiscal Studies, Monetary Policy
BFI Working Paper Sep 1, 2009

A Model of a Systemic Bank Run

Topics:  Fiscal Studies, Monetary Policy
BFI Working Paper Jul 1, 2011

Economics and Reality

Topics:  Fiscal Studies, Monetary Policy