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.

Keywords: Fiscal Multiplier, Global Financial Crisis, Panel VAR, Dynamic Panel, Fiscal policy interaction

JEL Classification: E61, E63, E65