Fiscal Multiplier in Bolivia: Do the Nationalization Process and the Unconventional Monetary Policy matter?

Abstract

This paper studies the fiscal multiplier in Bolivia considering key characteristics of the country and compares the results obtained for Bolivia with the fiscal multipliers estimated for Latin American countries. The main finding is that a positive shock to government spending increases output causing a larger short term response, with an impact multiplier of 0.74. This value is robust when the unconventional monetary policy is added, reaching a value of 0.73. Consideration of the Bolivian nationalization process in the analysis uncovers distinct impact multipliers, with a higher value during the Pre-nationalization (1990-2005) than the Post-nationalization (2006-2019) periods which correspond, respectively, to crisis and boom periods. A comparative analysis with Latin American countries confirms that fiscal multipliers are higher in the short term and economic downturns.