FISCAL MULTIPLIERS DURING THE GLOBAL FINANCIAL CRISIS: FISCAL AND MONETARY INTERACTION MATTERS

Abstract

This study investigates the fiscal multipliers of 21 OECD countries during the global financial crisis using panel VAR methodology. Our findings suggest that the 1-year fiscal multiplier was greater than 1 during the crisis, whereas it was smaller than 1 before the crisis because of different fiscal and monetary interactions. The combination of expansionary monetary and fiscal policies during the crisis boosted GDP more effectively through internal and external transmissions: investment crowding-out was limited, and net exports were spurred by the policy interaction. In addition, our results are robust to various specifications.

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