A1091
Title: Fiscal multipliers and economic risk
Authors: Francesco Frangiamore - University of Palermo (Italy) [presenting]
Davide Furceri - IMF (United States)
Domenico Giannone - Johns Hopkins University (United States)
Abstract: The focus goes beyond average multipliers and state-dependent multipliers and extends the framework by analyzing the asymmetric effects of government expenditure through a location-scale (mean-variance) model. This approach allows studying the effects of government expenditure on the distribution of output without the need to pre-define the economic states. Results show that fiscal expansions have dual effects. They boost average economic activity (positive location effect) and reduce macroeconomic uncertainty (negative scale effect). This creates a compounding, stronger positive impact on downside risk. Fiscal policy does not just shift the output distribution rightward toward higher growth; it also compresses it with lower uncertainty, dramatically increasing the left tail where recession and negative growth scenarios occur. As a consequence, it is very powerful in periods when growth vulnerabilities are severe.
