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Three states of fiscal multipliers in a small open economy

Author

Listed:
  • Simon Naitram

    (Central Bank of Barbados)

  • Justin Carter

    (Central Bank of Barbados)

  • Shane Lowe

    (Central Bank of Barbados)

Abstract

This research reviews the effects of fiscal expenditures on economic output in a non-linear fashion for the Barbados economy. Using the Markov-Switching methodology, fiscal expenditure multipliers are estimated for each stage of the business cycle. The data indicates that a three-regime model is the best fit – capturing recession, normal growth and boom periods. Our findings suggest that increasing capital expenditure is positively correlated with economic growth at all stages of the business cycle, while increasing current expenditure could have a negative impact on economic activity during recessionary and normal growth periods. Current expenditure is positively correlated with economic growth only when the economy is recovering rapidly. The results suggest that the impact of fiscal policies depend on the stage of the business cycle in Barbados, a small open economy with a fixed exchange rate.

Suggested Citation

  • Simon Naitram & Justin Carter & Shane Lowe, 2015. "Three states of fiscal multipliers in a small open economy," Economics Bulletin, AccessEcon, vol. 35(1), pages 720-728.
    • Handle: RePEc:ebl:ecbull:eb-14-00499
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    References listed on IDEAS

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    Cited by:

    1. Johannes Hermanus Kemp & Hylton Hollander, 2020. "A medium-sized, open-economy, fiscal DSGE model of South Africa," WIDER Working Paper Series wp-2020-92, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    fiscal multipliers; regime switching; small open economy; economic growth;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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