Incomplete markets and heterogeneous agents
Hagedorn and al. use a model with incomplete markets and heterogeneous agents with financial constraints where the fiscal multiplier operates through two channels: intertemporal substitution redistribution. They find that the output multiplier of an increase in government spending is equal to 0.6 if spending is tax financed and 1.5 if it is deficit financed. Their results are little changed when they estimate size of the fiscal multiplier in a liquidity trap.
The Fiscal Multiplier
Authors: Marcus Hagedorn, Iourii Manovskii, Kurt Mitman
From: University of Oslo, University of Pennsylvania, Stockholm University
In addition to incomplete markets and heterogeneous agents Dupor and al.’s contribute to this line of research by extending this setup to incorporate multiple regions that are linked through trade, fiscal, and monetary policy. Their structural model predicts an aggregate consumption multiplier around 0.4 which implies an output multiplier higher than one.
Regional Consumption Responses and the Aggregate Fiscal Multiplier
Authors: Bill Dupor, Marios Karabarbounis, Marianna Kudlyak, M. Saif Mehkari
From: Federal Reserve Bank of St. Louis, Federal Reserve Bank of Richmond, Federal Reserve Bank of San Francisco
