Countercyclical Fiscal Policy
Saturday, Jan. 4, 2020 8:00 AM - 10:00 AM (PST)
- Chair: Wendy Edelberg, U.S. Congressional Budget Office
Effects of Fiscal Policy on Credit Markets
AbstractCredit markets typically freeze in recessions: access to credit declines and the cost of credit increases. A conventional policy response is to rely on monetary tools to saturate financial markets with liquidity. Given limited space for monetary policy in the current economic conditions, we study how fiscal stimulus can influence local credit markets. Using rich geographical variation in U.S. federal government contracts, we document that, in a local economy, interest rates on consumer loans decrease in response to an expansionary government spending shock.
Automatic Stabilizers in a Low-Rate Environment
National Fiscal Policies to Reduce Cyclical Volatility in U.S. States
AbstractCountercyclical fiscal policy generally focuses on national economic downturns. But U.S. states experience significantly different patterns of unemployment, and demand shocks appear to drive much of that variation. State budget rules limit the ability of states to mount their own countercyclical policies. Federal taxes and spending programs have countercyclical effects within states, but the magnitude of those effects depends on policies that were designed based on other considerations (just as the extent of national automatic stabilizers is the result of policies based on other considerations). Enacting stronger cross-state fiscal redistribution would reduce costly variation in unemployment within states.
- E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook