Working Papers

2020-12 | September 2020


Decomposing the Fiscal Multiplier


The fiscal “multiplier” measures how many additional dollars of output are gained or lost for each dollar of fiscal stimulus or contraction. In practice, the multiplier at any point in time depends on the monetary policy response and existing conditions in the economy. Using the IMF fiscal consolidations dataset for identification and a new decomposition-based approach, we show how to quantify the importance of these monetary-fiscal interactions. In the data, the fiscal multiplier varies considerably with monetary policy: it can be zero, or as large as 2 depending on the monetary offset. More generally, we show how to decompose the typical macro impulse response function by extending local projections to carry out the well-known Blinder-Oaxaca decomposition. This provides a convenient way to evaluate the effects of policy, state-dependence, and balance conditions for identification.

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Article Citation

Cloyne, James S, Oscar Jorda, and Alan M. Taylor. 2020. "Decomposing the Fiscal Multiplier," Federal Reserve Bank of San Francisco Working Paper 2020-12. Available at