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Fiscal Multipliers in Recession and Expansion

In: Fiscal Policy after the Financial Crisis

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  • Alan Auerbach
  • Yuriy Gorodnichenko

Abstract

In this paper, we estimate government purchase multipliers for a large number of OECD countries, allowing these multipliers to vary smoothly according to the state of the economy and using real-time forecast data to purge policy innovations of their predictable components. We adapt our previous methodology (Auerbach and Gorodnichenko, 2011) to use direct projections rather than the SVAR approach to estimate multipliers, to economize on degrees of freedom and to relax the assumptions on impulse response functions imposed by the SVAR method. Our findings confirm those of our earlier paper. In particular, GDP multipliers of government purchases are larger in recession, and controlling for real-time predictions of government purchases tends to increase the estimated multipliers of government purchases in recession. We also consider the responses of other key macroeconomic variables and find that these responses generally vary over the cycle as well, in a pattern consistent with the varying impact on GDP.

(This abstract was borrowed from another version of this item.)

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This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12634.

Handle: RePEc:nbr:nberch:12634

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References

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  1. Yuriy Gorodnichenko & Enrique G. Mendoza & Linda L. Tesar, 2009. "The Finnish Great Depression: From Russia with Love," NBER Working Papers 14874, National Bureau of Economic Research, Inc.
  2. Bachmann, Rüdiger & Sims, Eric R., 2012. "Confidence and the transmission of government spending shocks," Journal of Monetary Economics, Elsevier, vol. 59(3), pages 235-249.
  3. Òscar Jordà, 2005. "Estimation and Inference of Impulse Responses by Local Projections," American Economic Review, American Economic Association, vol. 95(1), pages 161-182, March.
  4. Oscar Jorda, 2007. "Inference for Impulse Responses," Working Papers 77, University of California, Davis, Department of Economics.
  5. Daniel J. Wilson, 2010. "Fiscal spending multipliers: evidence from the 2009 American Recovery and Reinvestment Act," Working Paper Series 2010-17, Federal Reserve Bank of San Francisco.
  6. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
  7. Alan J. Auerbach & William G. Gale, 2009. "Activist Fiscal Policy to Stabilize Economic Activity," NBER Working Papers 15407, National Bureau of Economic Research, Inc.
  8. Lukas Vogel, 2007. "How do the OECD Growth Projections for the G7 Economies Perform?: A Post-Mortem," OECD Economics Department Working Papers 573, OECD Publishing.
  9. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
  10. Ethan Ilzetzki & Enrique G. Mendoza & Carlos A. Végh, 2010. "How Big (Small?) are Fiscal Multipliers?," CEP Discussion Papers dp1016, Centre for Economic Performance, LSE.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. A review of the recent literature on fiscal multipliers: size matters!
    by laurence-df in OFCE le blog on 2012-11-21 07:03:54
  2. Une revue récente de la littérature sur les multiplicateurs budgétaires : la taille compte !
    by laurence-df in OFCE le blog on 2012-11-21 07:02:59
  3. Guest Contribution: "Monetary Alchemy, Fiscal Science"
    by Menzie Chinn in Econbrowser on 2013-01-26 09:00:31
  4. Monetary Alchemy, Fiscal Science
    by jfrankel in Jeff Frankels Weblog on 2013-01-26 17:16:19
  5. Multiplicadores Fiscales Durante la Recesión
    by Alejandro Villagomez in Tintero Económico Diario on 2012-05-13 21:21:00
  6. Monetary or fiscal stimulus can help only if unemployment is cyclical; otherwise, if unemployment is structural expansionary policies will lead only to inflation. Careful recent analyses indicate that unemployment is mainly cyclical in the US
    by Blog Admin in British Politics and Policy at LSE on 2012-10-24 16:00:33
  7. Given the enormity of the short- and long-run fiscal challenges facing the US, the lack of policy detail from both presidential candidates is disappointing
    by Blog Admin in British Politics and Policy at LSE on 2012-10-25 13:00:36
  8. Guest Contribution: "Monetary Alchemy, Fiscal Science"
    by Menzie Chinn in Econbrowser on 2013-01-26 09:00:31
  9. Monetary Alchemy, Fiscal Science
    by jfrankel in Jeff Frankels Weblog on 2013-01-26 17:16:19
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Daniel Wilson & Sylvain Leduc, 2012. "Roads to Prosperity or Bridges to Nowhere? Theory and Evidence on the Impact of Public Infrastructure Investment," 2012 Meeting Papers 210, Society for Economic Dynamics.
  2. Giavazzi, Francesco & McMahon, Michael, 2012. "The Household Effects of Government Spending," CEPR Discussion Papers 8846, C.E.P.R. Discussion Papers.
  3. Ricco, Giovanni & Ellahie, Atif, 2012. "Government Spending Reloaded: Fundamentalness and Heterogeneity in Fiscal SVARs," MPRA Paper 42105, University Library of Munich, Germany.
  4. Nicholas Crafts & Terence C. Mills, 2012. "Rearmament to the Rescue? New Estimates of the Impact of ‘Keynesian’ Policies in 1930s’ Britain," Working Papers 0031, European Historical Economics Society (EHES).
  5. Michael T. Owyang & Valerie A. Ramey & Sarah Zubairy, 2013. "Are Government Spending Multipliers Greater During Periods of Slack? Evidence from 20th Century Historical Data," NBER Working Papers 18769, National Bureau of Economic Research, Inc.
  6. Manuel Coutinho Pereira, 2012. "Revisiting the effectiveness of monetary and fiscal policy in the US, measured on the basis of structural VARs," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  7. Bagaria, Nitika & Holland, Dawn & Van Reenen, John, 2012. "Fiscal consolidation during a depression ," Open Access publications from London School of Economics and Political Science CEPSP27, London School of Economics and Political Science.
  8. Gernot Müller & André Meier & Giancarlo Corsetti, 2012. "What Determines Government Spending Multipliers?," IMF Working Papers 12/150, International Monetary Fund.
  9. Edoardo Gaffeo & Ivan Petrella & Damjan Pfajfar & Emiliano Santoro, 2012. "Loss Aversion and the Asymmetric Transmission of Monetary Policy," Discussion Papers 12-21, University of Copenhagen. Department of Economics.
  10. repec:cep:cepsps:27 is not listed on IDEAS
  11. Francesco Giavazzi & Michael McMahon, 2012. "The Households Effects of Government Consumption," NBER Working Papers 17837, National Bureau of Economic Research, Inc.
  12. Rafiq, Sohrab & Zeufack, Albert, 2012. "Fiscal multipliers over the growth cycle : evidence from Malaysia," Policy Research Working Paper Series 5982, The World Bank.
  13. Sylvain Leduc & Daniel J. Wilson, 2012. "Should transportation spending be included in a stimulus program? a review of the literature," Working Paper Series 2012-15, Federal Reserve Bank of San Francisco.

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