Charles Freedman

Bio: Charles Freedman is an academic researcher from National Bureau of Economic Research. The author has contributed to research in topics: Monetary policy & Interest rate. The author has an hindex of 17, co-authored 43 publications receiving 1757 citations. Previous affiliations of Charles Freedman include Carleton University & Government of Canada.

Effects of Fiscal Stimulus in Structural Models

Abstract: The paper assesses, using seven structural models used heavily by policymaking institutions, the effectiveness of temporary fiscal stimulus. Models can, more easily than empirical studies, account for differences between fiscal instruments, for differences between structural characteristics of the economy, and for monetary-fiscal policy interactions. Findings are: (i) There is substantial agreement across models on the sizes of fiscal multipliers. (ii) The sizes of spending and targeted transfers multipliers are large. (iii) Fiscal policy is most effective if it has some persistence and if monetary policy accommodates it. (iv) The perception of permanent fiscal stimulus leads to significantly lower initial multipliers.

Effects of Fiscal Stimulus in Structural Models

Abstract: The paper subjects seven structural DSGE models, all used heavily by policymaking institutions, to discretionary fiscal stimulus shocks using seven different fiscal instruments, and compares the results to those of two prominent academic DSGE models. There is considerable agreement across models on both the absolute and relative sizes of different types of fiscal multipliers. The size of many multipliers is large, particularly for spending and targeted transfers. Fiscal policy is most effective if it has moderate persistence and if monetary policy is accommodative. Permanently higher spending or deficits imply significantly lower initial multipliers. (JEL E12, E13, E52, E62)

The Case for Global Fiscal Stimulus

Abstract: This paper presents simulations with a multicountry structural model to show that worldwide expansionary fiscal policy combined with accommodative monetary policy can have significant multiplier effects on the world economy. It also provides a framework for assessing the effects of fiscal actions needed to help counter the projected contractionary pressures in the world economy. In an ideal scenario where fiscal stimulus is both global and supported by monetary accommodation, and where financial sectors that are under pressure are being supported by governments, every dollar spent on government investment can increase GDP by about $3, while every dollar of targeted transfers can increase GDP by about $1. In countries in which fiscal space is limited, it will be especially important to focus fiscal stimulus actions on those measures that will have the largest effect on aggregate demand. It is particularly important for fiscal policy to take on an increased share of the burden during the period in which the financial sector is recovering and is not yet able or willing to extend credit to households and businesses to the extent that it normally does.

Monetary Policy Implementation: Past, Present and Future--Will Electronic Money Lead to the Eventual Demise of Central Banking?

Abstract: This paper examines the ways in which central banks influence the very short-term interest rate in regimes with and without reserve requirements. It then examines the implications for monetary policy implementation of the spread of electronic money and the potential for other mechanisms to compete with settlement arrangements at central banks. It concludes that it is extremely unlikely that electronic money will displace bank notes or the settlement services that are offered by central banks in the foreseeable future. Moreover, even in the extremely unlikely case that the spread of stored-value cards leads to the elimination of bank notes and that the development of network money permits alternative settlement services to be offered that effectively competes with central bank services, central banks would very likely be able to continue to influence the very short-term rate of interest. They would therefore be able to maintain their influence over aggregate demand and inflation even in such circumstances. Copyright 2000 by Blackwell Publishers Ltd.

Simple Analytics of the Government Expenditure Multiplier

Abstract: This paper explains the key factors that determine the output multiplier of government purchases in New Keynesian models, through a series of simple examples that can be solved analytically. Sticky prices or wages allow for larger multipliers than in a neoclassical model, though the size of the multiplier depends crucially on the monetary policy response. A multiplier well in excess of 1 is possible when monetary policy is constrained by the zero lower bound, and in this case welfare increases if government purchases expand to partially flll the output gap that arises from the inability to lower interest rates.

Growth Forecast Errors and Fiscal Multipliers

Abstract: This paper investigates the relation between growth forecast errors and planned fiscal consolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters. The weaker relation in more recent years may reflect in part learning by forecasters and in part smaller multipliers than in the early years of the crisis.

Government Spending Multipliers in Good Times and in Bad: Evidence from U.S. Historical Data

Abstract: This paper investigates whether U.S. government spending multipliers differ according to two potentially important features of the economy: (1) the amount of slack and (2) whether interest rates are near the zero lower bound. We shed light on these questions by analyzing new quarterly historical U.S. data covering multiple large wars and deep recessions. We estimate a state-dependent model in which impulse responses and multipliers depend on the average dynamics of the economy in each state. We find no evidence that multipliers differ by the amount of slack in the economy. These results are robust to many alternative specifications. The results are less clear for the zero lower bound. For the entire sample, there is no evidence of elevated multipliers near the zero lower bound. When World War II is excluded, some point estimates suggest higher multipliers during the zero lower bound state, but they are not statistically different from the normal state. Our results imply that, contrary to recent conjecture, government spending multipliers were not necessarily higher than average during the Great Recession.

Effects of Fiscal Stimulus in Structural Models

Abstract: The paper assesses, using seven structural models used heavily by policymaking institutions, the effectiveness of temporary fiscal stimulus. Models can, more easily than empirical studies, account for differences between fiscal instruments, for differences between structural characteristics of the economy, and for monetary-fiscal policy interactions. Findings are: (i) There is substantial agreement across models on the sizes of fiscal multipliers. (ii) The sizes of spending and targeted transfers multipliers are large. (iii) Fiscal policy is most effective if it has some persistence and if monetary policy accommodates it. (iv) The perception of permanent fiscal stimulus leads to significantly lower initial multipliers.