  We study the effects on economic activity of a pure temporary change in
government debt and the relationship between the debt multiplier and the level
of debt in an overlapping generations framework. The debt multiplier is
positive but quite small during normal times while it is much larger during
crises. Moreover, it increases with the steady state level of debt. Hence, the
call for fiscal consolidation during recessions seems ill-advised. Finally, a
rise in the steady state debt-to-GDP level increases the steady state real
interest rate providing more room for manoeuvre to monetary policy to fight
deflationary shocks.
