Dual regime fiscal multipliers in converging economies - a simplified STVAR approach

This paper assesses fiscal policy effects over the business cycle in V4 countries using a simplified smooth transition VAR (STVAR) model. The estimated parameters imply a presence of two different regimes associated with recessions and expansions, leading to different impulse-response functions. Transformation of these functions to fiscal multipliers confirms a different nature of long run effects. In expansions, the fiscal multipliers peak below unity and diminish to zero. In recession, the multipliers grow faster than in expansion and stay well above unity.