Reassessing the impact of the US Fiscal Stimulus: The role of the monetary policy stance (with Andrew Hughes Hallett and Ansgar Rannenberg)

Published in "International Business Research", 2017, vol. 10, issue 4, pages 12-31; see doi:10.5539/ibr.v10n4p12.

Keywords: Obama fiscal stimulus, fiscal multiplier, interest rate forecasts

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Abstract: Cogan et al. (2009, 2010) claimed that the stimulus package passed by the United States Congress in February 2009 had a multiplier far below one. However, the stimulus’ multiplier strongly depends on the assumed monetary policy response. Based on official statements from the Fed chairman, the general economic outlook, past behavior of the FOMC, optimal policy considerations, and from financial market expectations, we find that in February 2009, a reasonable prediction of the period of monetary accommodation would have exceeded 9 quarters. This implies that a plausible real time assessment of the stimulus’ effects would have been more optimistic than Cogan et al.’s.

(Latest update: October 2017)