Time Variation in the Size of the Multiplier
WORKING PAPER
(248 KB)
This paper contributes to the theory of the time-varying multiplier.
It is shown that a combination of Kalecki’s dynamic theory of investment and Harrod’s “satisficing” approach to the investment decision furnish a theory in which the “crowding in” of investment expenditures following an initial demand stimulus (fiscal or otherwise) gives rise to an elevated expenditure multiplier during times of pronounced macroeconomic distress.