On Fiscal Multipliers: Estimates from a Medium Scale DSGE Model
AbstractThis paper contributes to the debate on fiscal multipliers, in the context of a structural model. I estimate a micro-founded dynamic stochastic general equilibrium model, that features a rich fiscal policy block and a transmission mechanism for government spending shocks, using Bayesian techniques for US data. I find the multiplier for government spending to be 1.12, and the maximum impact is when the spending shock hits the economy. In addition, the estimated model predicts a positive but small response of private consumption to increased government spending. The multipliers for labor and capital tax on impact are 0.13 and 0.33, respectively. The effects of tax cuts, on the other hand, take time to build, and exceed the stimulative effects of higher spending at horizons of 12-20 quarters. The expansionary effects of tax cuts are primarily driven by the response of investment. I carry out several counterfactual exercises to show how alternative financing methods and expected monetary policy have consequences for the size of fiscal multipliers. I also simulate the impact of the American Recovery and Reinvestment Act of 2009 in the estimated model.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 10-30.
Length: 52 pages
Date of creation: 2010
Date of revision:
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Fiscal policy; Economic models;
Other versions of this item:
- Sarah Zubairy, 2014. "On Fiscal Multipliers: Estimates From A Medium Scale Dsge Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 169-195, 02.
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-04 (All new papers)
- NEP-CBA-2010-12-04 (Central Banking)
- NEP-DGE-2010-12-04 (Dynamic General Equilibrium)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Todd B. Walker & Eric M. Leeper & Shu-Chun S. Yang, 2012.
"Fiscal Foresight and Information Flows,"
IMF Working Papers
12/153, International Monetary Fund.
- Del Negro, Marco & Schorfheide, Frank & Smets, Frank & Wouters, Rafael, 2005.
"On the Fit and Forecasting Performance of New Keynesian Models,"
CEPR Discussion Papers
4848, C.E.P.R. Discussion Papers.
- Del Negro, Marco & Schorfheide, Frank & Smets, Frank & Wouters, Raf, 2005. "On the fit and forecasting performance of New-Keynesian models," Working Paper Series 0491, European Central Bank.
- Marco Del Negro & Frank Schorfheide & Frank Smets & Raf Wouters, 2004. "On the fit and forecasting performance of New Keynesian models," Working Paper 2004-37, Federal Reserve Bank of Atlanta.
- Eric M. Leeper & Todd B. Walker & Shu-Chun Susan Yang, 2011. "Foresight and Information Flows," NBER Working Papers 16951, National Bureau of Economic Research, Inc.
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