State-dependent fiscal multipliers and financial dynamics: An impulse response analysis by local projections for South Africa

Arbeitspapier

The aim of this paper is to assess South Africa's fiscal multiplier across different states of the economy, with a focus on the financial accelerator mechanism of fiscal policy shocks, by estimating impulse response functions from both linear and non-linear local projections. The model finds evidence of strong business cycle effects such that, while the average multiplier is below 0.5, it reaches 1.2 during recessions and that, while credit volume diminishes during periods of positive output gap, it expands otherwise. Results suggest that a fiscal expansion crowds out private economic activity in good times only, while it holds a positive balance-sheet effect on liquidity-constrained agents during bad times. Evidence of a state-dependent financial accelerator mechanism of fiscal expansion is confirmed by the positive response of the Financial Times Stock Exchange/Johannesburg Stock Exchange All-Share Index during times of slack.

Object Details

• ISBN: 978-92-9267-015-3
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: WIDER Working Paper ; No. 2021/77

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Financial Markets and the Macroeconomy ; Fiscal Policy
• Subject: fiscal multiplier ; local projections ; state-dependent multiplier ; credit ; South Africa

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Merrino, Serena
• Event: Veröffentlichung
• (who): The United Nations University World Institute for Development Economics Research (UNU-WIDER)
• (where): Helsinki
• (when): 2021

Further information

• DOI: doi:10.35188/UNU-WIDER/2021/015-3
• Handle: http://hdl.handle.net/10419/243403
• Last update: 10.03.2025, 11:45 AM CET