We study the effects on economic activity of a pure temporary change in government debt and the relationship between the debt multiplier and the level of debt in an overlapping generations framework. The debt multiplier is positive but quite small during normal times while it is much larger during crises. Moreover, it increases with the steady state level of debt. Hence, the call for fiscal consolidation during recessions seems ill-advised. Finally, a rise in the steady state debt-to-GDP level increases the steady state real interest rate providing more room for manoeuvre to monetary policy to fight deflationary shocks.

Albonico, A., Ascari, G., Gobbi, A. (2021). The public debt multiplier. JOURNAL OF ECONOMIC DYNAMICS & CONTROL, 132(November 2021) [10.1016/j.jedc.2021.104204].

The public debt multiplier

Albonico A.
;
2021

Abstract

We study the effects on economic activity of a pure temporary change in government debt and the relationship between the debt multiplier and the level of debt in an overlapping generations framework. The debt multiplier is positive but quite small during normal times while it is much larger during crises. Moreover, it increases with the steady state level of debt. Hence, the call for fiscal consolidation during recessions seems ill-advised. Finally, a rise in the steady state debt-to-GDP level increases the steady state real interest rate providing more room for manoeuvre to monetary policy to fight deflationary shocks.
Articolo in rivista - Articolo scientifico
Fiscal policy; Multiplier; Overlapping generations; Public debt;
English
Albonico, A., Ascari, G., Gobbi, A. (2021). The public debt multiplier. JOURNAL OF ECONOMIC DYNAMICS & CONTROL, 132(November 2021) [10.1016/j.jedc.2021.104204].
Albonico, A; Ascari, G; Gobbi, A
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/351611
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