Insights Blog

A New Approach to the Business Cycle and the Keynesian Multiplier

November 24, 2020

SCEPA economists published research in an influential academic journal on the Keynesian multiplier, a hotly debated issue in progressive economics on the efficacy of fiscal policy and deficit spending in a recession.

Willi Semmler, Professor of Economics at The New School for Social Research, along with co-authors Alexander Haider and Andreas Lichtenberger, both PhD students at The New School, published their paper, “The State of the Business Cycle, Financial Fragility and the Multiplier,” in the Review of Keynesian Studies, published in Japan.

The multiplier effect of fiscal spending, or how much economic benefit is derived from increased government spending, has long been an object of study since Keynes. This paper explores the effects of the fiscal multiplier in the context of the business cycle, emphasizing how the multiplier is dependent on uncertainties and other policies. The authors find that the size of the multiplier is dependent on the state of the business cycle, financial fragility, and financial stress, as well as monetary policy. The multiplier is also affected by factors we are experiencing now in the pandemic recession -- how uncertainties about the future drive people’s economic choices.