When is the Government Transfer Multiplier Large?
Transfers to individuals were a larger part of the 2009 U.S. stimulus package than government purchases. Using a two-agent New Keynesian model, this paper shows analytically that the multiplier on targeted transfers to financially constrained house...
| Main Authors: | , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/786831504723306335/When-is-the-government-transfer-multiplier-large http://hdl.handle.net/10986/28361 |
| Summary: | Transfers to individuals were a larger
part of the 2009 U.S. stimulus package than government
purchases. Using a two-agent New Keynesian model, this paper
shows analytically that the multiplier on targeted transfers
to financially constrained households is (i) larger than the
purchase multiplier if the zero lower bound (ZLB) binds, and
(ii) is more sensitive to the degree of monetary
accommodation of inflation. Targeted transfers provide the
same boost to demand as purchases, but lower aggregate
supply relative to purchases, as those receiving transfers
want to work less. When the aggregate demand curve inverts,
such as when the zero lower bound binds, the extra inflation
from lower supply boosts the multiplier. This result also
holds quantitatively in a medium-scale version of the model. |
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