DO FISCAL MULTIPLIERS VARY WITH DIFFERENT CHARACTER OF MONETARY-FISCAL INTERACTIONS?

We investigate the fiscal multiplier in normal times and in the presence of a binding zero lower bound on interest rates with SVARs. We construct shocks to interest rates that compensate their reactions to fiscal expansion and hold them constant we apply the shocks to the United States, the Euro area and Slovakia. We find that for the former case, the multiplier decreases in the ZLB, but it increases sharply in the ZLB for the latter two cases. The sign of its change is determined by the coordination of fiscal and monetary policy i.e. whether the interest rates drop or rise in response to fiscal expansion.