NBER Publications by Robert Krenn

This paper is about the size of fiscal multipliers and the sources of recovery from the Great Depression. Its baseline result is that 89.1 percent of the 1939:Q1-1941:Q4 recovery can be attributed to fiscal policy innovations, 34.1 percent to monetary policy innovations and the remaining -23.2 percent to the combined effect of the basic VAR dynamic forecast and innovations in non-government components of GDP. Traditional Keynesian multipliers assume that there are no capacity constraints to impede a fiscal-driven expansion in aggregate demand. On the contrary, we find ample evidence of capacity constraints in 1941, particularly in the second half of that year. As a result our preferred government spending multiplier is 1.80 when the time period ends in 1941:Q2 but only 0.88 when t...