Template-Type: ReDIF-Article 1.0

Author-Name: György Molnár
Author-Workplace-Name: Magyar Nemzeti Bank
Author-Email: gyorgy.molnar@ogresearch.com

Author-Name: Gábor Dániel Soós
Author-Workplace-Name: Magyar Nemzeti Bank
Author-Email: soosg@mnb.hu

Author-Name: Balázs Világi
Author-Workplace-Name: Magyar Nemzeti Bank
Author-Email: vilagib@mnb.hu

Title: Fiscal Policy and the Business Cycle

Abstract: After the 2007–2008 financial crisis and the subsequent prolonged, deep recession,
the question of whether fiscal policy can be applied to stimulate the economy came
into focus, as conventional tools of monetary policy became ineffective. Accordingly,
the related research also received a new boost. The purpose of our paper is to
present the new research results, which mainly focus on whether fiscal policy can
be applied to influence business cycles. Although there is still much debate, the
claim that the effects of fiscal policy are not constant, but rather depend on the
state of the business cycle, has been supported by numerous theoretical models
and empirical results: in prolonged, deep recessions, and especially in the case of a
liquidity trap, the multiplier of government expenditures is high, while in the case
of booms it is relatively low.

Classification-JEL: E62, E52, E21, E12
Keywords: fiscal policy, expenditure multiplier, business cycles, liquidity trap, debtconstrained
households
Pages: 58-85
Volume: 16
Issue: 4
Year: 2017
File-URL: http://english.hitelintezetiszemle.hu/letoltes/fer-16-4-st3-molna-r-soo-s-vila-gi.pdf
File-Format: Application/pdf
Handle: RePEc:mnb:finrev:v:16:y:2017:i:4:p:58-85