Learning and the Size of the Government Spending Multiplier
Author | : Ewoud Quaghebeur |
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Total Pages | : |
Release | : 2013 |
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Author | : Ewoud Quaghebeur |
Publisher | : |
Total Pages | : |
Release | : 2013 |
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Author | : Mario Di Serio |
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Total Pages | : |
Release | : 2020 |
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We estimate state-dependent government spending multipliers for the United States. We use a Factor-Augmented Interacted Vector Autoregression (FAIVAR) model. This allows us to capture the time-varying monetary policy characteristics including the recent zero interest rate lower bound (ZLB) state, to account for the state of the business cycle, and to address the limited information problem typically inherent in VARs. We identify government spending shocks by sign restrictions and use a government spending growth forecast series to account for the effects of anticipated fiscal policy. In our baseline specification, we find that government spending multipliers in a recession range from 3:56 to 3:79 at the ZLB. Away from the ZLB, multipliers in recessions range from 2:31 to 3:05. Several robustness analyses confirm that multipliers are higher, when the interest rate is lower and that multipliers in recessions exceed multipliers in expansions. Our results are consistent with theories that predict larger multipliers at the ZLB.
Author | : American Economic Association |
Publisher | : |
Total Pages | : 122 |
Release | : 2013-10 |
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ISBN | : 9781258945572 |
This is a new release of the original 1944 edition.
Author | : Valerie Ann Ramey |
Publisher | : |
Total Pages | : 58 |
Release | : 2014 |
Genre | : Government spending policy |
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This paper investigates whether U.S. government spending multipliers differ according to two potentially important features of the economy: (1) the amount of slack and (2) whether interest rates are near the zero lower bound. We shed light on these questions by analyzing new quarterly historical U.S. data covering multiple large wars and deep recessions. We estimate a state-dependent model in which impulse responses and multipliers depend on the average dynamics of the economy in each state. We find no evidence that multipliers differ by the amount of slack in the economy. These results are robust to many alternative specifications. The results are less clear for the zero lower bound. For the entire sample, there is no evidence of elevated multipliers near the zero lower bound. When World War II is excluded, some point estimates suggest higher multipliers during the zero lower bound state, but they are not statistically different from the normal state. Our results imply that, contrary to recent conjecture, government spending multipliers were not necessarily higher than average during the Great Recession.
Author | : Marian Krzyzaniak |
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Total Pages | : 0 |
Release | : 1972 |
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Total Pages | : 41 |
Release | : 2013 |
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Author | : Zacharias Bragoudakis |
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Release | : 2021 |
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Total Pages | : 29 |
Release | : 2014 |
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Author | : Yoon J. Jo |
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Total Pages | : 0 |
Release | : 2022 |
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We consider a New Keynesian model with downward nominal wage rigidity (DNWR) and show that government spending is much more effective in stimulating output in a low-inflation recession relative to a high-inflation recession. The government spending multiplier is large when DNWR binds, but the nature of recession matters due to the opposing response of inflation. In a demand-driven recession, inflation falls, preventing real wages from falling, leading to unemployment, while inflation rises in a supply-driven recession limiting the consequences of DNWR on employment. We document supporting empirical evidence, using both historical time series data and cross-sectional data from U.S. states.
Author | : Michael T. Owyang |
Publisher | : |
Total Pages | : 0 |
Release | : 2013 |
Genre | : Economics |
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A key question that has arisen during recent debates is whether government spending multipliers are larger during times when resources are idle. This paper seeks to shed light on this question by analyzing new quarterly historical data covering multiple large wars and depressions in the U.S. and Canada. Using an extension of Ramey's (2011) military news series and Jordà's (2005) method for estimating impulse responses, we find no evidence that multipliers are greater during periods of high unemployment in the U.S. In every case, the estimated multipliers are below unity. We do find some evidence of higher multipliers during periods of slack in Canada, with some multipliers above unity.