A Simple Method to Compute Fiscal Multipliers

IMF Working Papers, June 9, 2014

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Fiscal multipliers are important tools for macroeconomic projections and policy design.
Data limitations in many countries restrict empirical research on the size of multipliers.
The paper proposes a simple method—dubbed the “bucket approach”—to produce reasonable multiplier estimates for such countries.
The approach groups countries into buckets with similar multiplier values, based on their characteristics, and accounts for temporary factors such as the state of the business cycle.

Groups (or “buckets”) countries into sets with similar multiplier values based on observable characteristics.
Incorporates the effect of temporary factors, explicitly mentioning the state of the business cycle as an example of such factors.

Provides a pragmatic technique to estimate fiscal multipliers when detailed country-specific empirical analysis is not feasible due to data constraints.
Emphasizes comparability across countries by using shared characteristics to assign multiplier values.
Highlights the importance of adjusting multipliers for temporary influences (for example, cyclical conditions).

Offers policymakers and forecasters a usable framework to assign multiplier values in the absence of detailed empirical estimates.
Suggests that multiplier estimates should be adjusted for cyclical and other temporary factors to improve projection accuracy and policy design.

IMF Working Paper: "A Simple Method to Compute Fiscal Multipliers" by Nicoletta Batini, Working Paper No. 2014/093 (June 9, 2014).