The concept of the fiscal multiplier can be viewed as simple, but there are many potential complexities to analysis. In this text, I keep the discussion simple (with a nod towards the complexities). There are multiple potential definitions of the fiscal multiplier, but I will use a straightforward one: it is the coefficient relating the expected change of nominal GDP based on an assumed change in a fiscal variable. For example, if a policy change scenario is expected to raise the fiscal deficit by $100 million (relative to baseline), and the modelled change to nominal GDP is $150 million higher than the baseline, we could say that the multiplier is 1.5 from the deficit to GDP.
The definition deliberately uses the vague term “fiscal variable” for reasons to be discussed later....Bond Economics
Primer: The Fiscal Multiplier
Brian Romanchuk
1 comment:
"deficit too small!"
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