Three States of Fiscal Multipliers in a Small Open Economy

A medium-sized, open-economy, fiscal DSGE model of South Africa

“…While the implied multipliers do increase with the share of non-Ricardian households, consumption multipliers never turn positive, while the output multipliers remain well below 1. This finding is consistent with evidence for open economies (see, for example, Forni et al 2009;Naitram et al 2015;Ratto et al 2006;Sin 2016). Additionally, the introduction of additional frictions in the model set-up in the form of labour and consumption taxes (which respond to debt) serves to dampen the effect of government spending increases.…”