Fiscal Multipliers and Foreign Holdings of Public Debt

Abstract

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Saving Constraints, Debt, and the Credit Market Response to Fiscal Stimulus

“…Inverse relationships also hold when we control for the fraction of government foreign debt-to-GDP. The coefficient for foreign public debt-to-GDP is negative and consistent with the predictions inPriftis and Zimic [2018] andBroner et al [2018] However, we only have 19 observations in this specification as there are no data for Belgium, Denmark, France, Germany, Japan, New Zealand, Norway, and Poland.14 Miranda-Pinto et al[2019] lay out a theory of saving-constrained households and demonstrate that in a dynamic setting with incomplete markets, saving-constrained households exist in the stationary equilibrium (they do not fully precautionarily save to avoid the constraint in a calibrated model). The paper shows that the existence of saving-constrained households provides an explanation for puzzling aspects of the microdata.…”

US Corporate Tax Rate Cuts: Spillovers to the Irish Economy

“…This helps us preserve valuable degrees of freedom and is especially important in facilitating the inclusion of additional variables to assess the transmission channel of the spillovers by avoiding the curse of dimensionality. Finally, the approach is particularly suited to the incorporation of state dependent responses to fiscal shocks (Auerbach and Gorodnichenko, 2013;Owyang et al, 2013;Broner et al, 2018;Ramey and Zubairy, 2018). Auerbach and Gorodnichenko (2013) and Blagrave et al (2017) demonstrate that the state of the economy when the shock occurs can affect the magnitude of fiscal spillovers.…”

What Do We Know About the Macroeconomic Effects of Fiscal Policy? A Brief Survey of the Literature on Fiscal Multipliers

“…Bernardini and Peersman () use state‐dependent local projections and historical US data and find that fiscal spending multipliers are particularly high during periods of private debt overhang thanks to crowding in. Looking at open economies, Broner et al () (a paper presented at the Meeting) study the role played by foreign holdings of public debt for the domestic fiscal multipliers. While an expansion of public spending in close economies typically crowds out private investment, for open economies, since foreign investors are allowed to buy domestic debt, the negative crowding out effect on domestic investment is mitigated.…”

“…While an expansion of public spending in close economies typically crowds out private investment, for open economies, since foreign investors are allowed to buy domestic debt, the negative crowding out effect on domestic investment is mitigated. Broner et al () test this hypothesis with a panel data approach involving 17 advanced economies from the 1980s to the present. In line with the predictions of their theoretical model, they find that the size of fiscal multipliers increases with increasing share of public debt held by foreigners.…”