Monetary/Fiscal Policy Mix And The Size Of Government Spending Multiplier

Rym Aloui (1)

1 GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne

This paper analyzes the size of government spending multiplier in two policy mix cases: Active Monetary/Passive Fiscal policy (regime M) in the first instance and Passive Monetary/Active Fiscal policy (regime F), in the sense of Leeper (1991), in the second. I develop a New-Keynesian model where preferences are subject to external deep habits and where some households do not have access to financial markets. I show that these two specifications allow for the crowding in of private consumption in both regimes. However, the private investment falls in regime M while it rises in regime F as a response to a government spending shock. In addition, I show that the impact multiplier increases with the degree of deep habits in regime M, while it decreases in regime F. In this framework, in a low nominal interest rate environment, the government spending multiplier is not too large as vast studies show. However, I find that the global effectiveness of government spending is larger in regime F than in regime M, even though the impact multiplier is greater than unity in both regimes.

Mots clés: E63; E52; E62; E32 Wealth Effects; Government Spending Multiplier; Zero Lower Bound; Fiscal Theory of the Price Level; Monetary and Fiscal Rules; Public Debt

Domaines: Sciences de l'Homme et Société

Rym Aloui. Monetary/Fiscal Policy Mix And The Size Of Government Spending Multiplier. 2022. ⟨hal-03752458⟩