Fiscal stimulus works even in debt-driven recessions – Cleveland Fed paper
Economists find the fiscal multiplier is higher in indebted areas
Fiscal stimulus is not weakened or rendered useless when recessions are caused by high levels of indebtedness, according to an ‘economic commentary' published by the Federal Reserve Bank of Cleveland on August 16.
Yuliya Demyanyk, Elena Loutskina and Daniel Murphy use defence spending to estimate the fiscal multiplier, as they observe it tends to be affected by geopolitical events rather than the business cycle, avoiding problems of reverse causality. Based on their estimates, higher government
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