cover image: Transfers, Excess Savings, and Large Fiscal Multipliers

Transfers, Excess Savings, and Large Fiscal Multipliers

27 Sep 2024

This paper seeks to show that a New Keynesian model can produce highly persistent and large output responses to fiscal transfers and excess wealth, in line with recent empirical literature. The introduction of myopia to households to allow realistic degrees of dissaving from wealth and accumulated transfers, alongside more standard Keynesian features, achieves this goal. Model IRFs closely match the high fiscal multipliers from the tax stimulus SVAR literature, and also have important inflationary consequences. An application of this model to the COVID era, where transfer payments in the United States supported an accumulation of ``excess savings", results in inflation rising by over 1 percentage point for several years as well as a persistent increase in output over the same horizon. Finally, under the same framework and calibration, it is found that high debt and a weak fiscal rule can dull the transmission of monetary policy due to the wealth effect from higher interest payments.
covid-19 fiscal policy inflation consumption income national accounts wages labor fiscal transfers fiscal multipliers excess savings

Authors

Gene Kindberg-Hanlon

Organizations mentioned

DOI
https://doi.org/10.5089/9798400289354.001
ISBN
9798400289354
ISSN
1018-5941
Issue
208
Pages
43
Published in
United States of America
Series
Working Paper No. 2024/208
Stock No
WPIEA2024208
Volume
2024

Table of Contents

Related Topics

All