Household Debt and Fiscal Multipliers. (14th September 2015)

• Record Type: Journal Article
• Authors: Andrés, J.; Boscá, J. E.; Ferri, J.
• Is Part Of: Economica. Volume 82(2015)Supplement 1
• Page Start: 1048
• Page End: 1081
• Publication Date: 2015-09-14
• Subjects: Economics -- Periodicals; 330.05
• DOI: 10.1111/ecca.12161
• Languages: English
• ISSNs: 0013-0427

Abstract

Abstract : We study the size of government spending multipliers in a general equilibrium model with search and matching frictions in which we allow for different levels of household indebtedness. The main results are: (a) the presence of impatient households and private debt helps to generate government spending multipliers greater than 1; (b) as financial conditions worsen, the size of the government spending multiplier falls; (c) conversely, employment, vacancies and unemployment multipliers are larger in a credit crunch; (d) the model explains the observed pattern of responses of labour market variables, housing prices and private debt to a fiscal shock reasonably well.