IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/15330.html
   My bibliography  Save this paper

Should we trust cross sectional multiplier estimates?

Author

Listed:
  • Canova, Fabio

Abstract

I examine the properties of cross sectional estimates of multipliers, elasticities, or pass-throughs when the data is generated by a conventional multi-unit time series specification. A number of important biases plague estimates; the most relevant one occurs when the cross section is not dynamic homogenous. I suggest methods that can deal with this problem and show the magnitude of the biases cross sectional estimators display in an experimental setting. I contrast average time series and average cross sectional estimates of local fiscal multipliers for US states.

Suggested Citation

  • Canova, Fabio, 2020. "Should we trust cross sectional multiplier estimates?," CEPR Discussion Papers 15330, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15330
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP15330
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
    2. Dupor, Bill & Guerrero, Rodrigo, 2017. "Local and aggregate fiscal policy multipliers," Journal of Monetary Economics, Elsevier, vol. 92(C), pages 16-30.
    3. Gabriel Chodorow-Reich, 2019. "Geographic Cross-Sectional Fiscal Spending Multipliers: What Have We Learned?," American Economic Journal: Economic Policy, American Economic Association, vol. 11(2), pages 1-34, May.
    4. Fabio Canova & Evi Pappa, 2007. "Price Differentials in Monetary Unions: The Role of Fiscal Shocks," Economic Journal, Royal Economic Society, vol. 117(520), pages 713-737, April.
    5. Valerie A. Ramey, 2019. "Ten Years after the Financial Crisis: What Have We Learned from the Renaissance in Fiscal Research?," Journal of Economic Perspectives, American Economic Association, vol. 33(2), pages 89-114, Spring.
    6. Mark Gertler & Peter Karadi, 2015. "Monetary Policy Surprises, Credit Costs, and Economic Activity," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 44-76, January.
    7. Emi Nakamura & J?n Steinsson, 2014. "Fiscal Stimulus in a Monetary Union: Evidence from US Regions," American Economic Review, American Economic Association, vol. 104(3), pages 753-792, March.
    8. Gabriel Jiménez & Steven Ongena & José‐Luis Peydró & Jesús Saurina, 2014. "Hazardous Times for Monetary Policy: What Do Twenty‐Three Million Bank Loans Say About the Effects of Monetary Policy on Credit Risk‐Taking?," Econometrica, Econometric Society, vol. 82(2), pages 463-505, March.
    9. Valerie A. Ramey & Sarah Zubairy, 2018. "Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 850-901.
    10. Chakraborty, Indraneel & Goldstein, Itay & MacKinlay, Andrew, 2020. "Monetary stimulus and bank lending," Journal of Financial Economics, Elsevier, vol. 136(1), pages 189-218.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ortmans, Aymeric & Tripier, Fabien, 2021. "COVID-induced sovereign risk in the euro area: When did the ECB stop the spread?," European Economic Review, Elsevier, vol. 137(C).
    2. Fernandez-Gallardo, Alvaro, 2023. "Preventing financial disasters: Macroprudential policy and financial crises," European Economic Review, Elsevier, vol. 151(C).
    3. Francesco Simone Lucidi, 2023. "The misalignment of fiscal multipliers in Italian regions," Regional Studies, Taylor & Francis Journals, vol. 57(10), pages 2073-2086, October.
    4. Ricardo Duque Gabriel & Mathias Klein & Ana Sofia Pessoa, 2023. "The Effects of Government Spending in the Eurozone," Journal of the European Economic Association, European Economic Association, vol. 21(4), pages 1397-1427.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chodorow-Reich, Gabriel, 2020. "Regional data in macroeconomics: Some advice for practitioners," Journal of Economic Dynamics and Control, Elsevier, vol. 115(C).
    2. Valerie A. Ramey, 2020. "The Macroeconomic Consequences of Infrastructure Investment," NBER Chapters, in: Economic Analysis and Infrastructure Investment, pages 219-268, National Bureau of Economic Research, Inc.
    3. Thomas Gemert & Lenard Lieb & Tania Treibich, 2022. "Local fiscal multipliers of different government spending categories," Empirical Economics, Springer, vol. 63(5), pages 2551-2575, November.
    4. Wei Dong & Geoffrey Dunbar & Christian Friedrich & Dmitry Matveev & Romanos Priftis & Lin Shao, 2021. "Complementarities Between Fiscal Policy and Monetary Policy—Literature Review," Discussion Papers 2021-4, Bank of Canada.
    5. Taylor, Alan M. & Cloyne, James & Jordà , Òscar, 2023. "State-Dependent Local Projections: Understanding Impulse Response Heterogeneity," CEPR Discussion Papers 17903, C.E.P.R. Discussion Papers.
    6. Yoon J. Jo & Sarah Zubairy, 2021. "State dependent government spending multipliers: Downward nominal wage rigidity and sources of business cycle fluctuations," Working Papers 20210127-001, Texas A&M University, Department of Economics.
    7. Pennings,Steven Michael, 2020. "Cross-Region Transfers in a Monetary Union : Evidence from the US and Some Implications," Policy Research Working Paper Series 9244, The World Bank.
    8. Ethan Ilzetzki, 2023. "Learning by necessity: Government demand, capacity constraints, and productivity growth," Discussion Papers 2305, Centre for Macroeconomics (CFM).
    9. Imai, Masami, 2022. "Local economic impacts of legislative malapportionment," Journal of Urban Economics, Elsevier, vol. 131(C).
    10. Schoenle, Raphael & Müller, Gernot & Pasten, Ernesto & Weber, Michael, 2020. "Big G," CEPR Discussion Papers 14625, C.E.P.R. Discussion Papers.
      • Lydia Cox & Gernot J. Müller & Ernesto Pasten & Raphael Schoenle, 2020. "Big G," Working Papers 20-15, Federal Reserve Bank of Cleveland.
      • Lydia Cox & Gernot Muller & Ernesto Pasten & Raphael Schoenle & Michael Weber, 2020. "Big G," Working Papers Central Bank of Chile 878, Central Bank of Chile.
      • Lydia Cox & Gernot J. Müller & Ernesto Pasten & Raphael Schoenle & Michael Weber, 2020. "Big G," Working Papers 2020-36, Becker Friedman Institute for Research In Economics.
      • Lydia Cox & Gernot Müller & Ernesto Pasten & Raphael S. Schoenle & Michael Weber & Michael Weber, 2020. "Big G," CESifo Working Paper Series 8229, CESifo.
      • Lydia Cox & Gernot Müller & Ernesto Pastén & Raphael Schoenle & Michael Weber, 2020. "Big G," NBER Working Papers 27034, National Bureau of Economic Research, Inc.
    11. Dennis Egger & Johannes Haushofer & Edward Miguel & Paul Niehaus & Michael Walker, 2022. "General Equilibrium Effects of Cash Transfers: Experimental Evidence From Kenya," Econometrica, Econometric Society, vol. 90(6), pages 2603-2643, November.
    12. Gerald Carlino & Thorsten Drautzburg & Robert Inman & Nicholas Zarra, 2023. "Partisanship and Fiscal Policy in Economic Unions: Evidence from US States," American Economic Review, American Economic Association, vol. 113(3), pages 701-737, March.
    13. Ricardo Duque Gabriel & Mathias Klein & Ana Sofia Pessoa, 2023. "The Effects of Government Spending in the Eurozone," Journal of the European Economic Association, European Economic Association, vol. 21(4), pages 1397-1427.
    14. Berge, Travis & De Ridder, Maarten & Pfajfar, Damjan, 2021. "When is the fiscal multiplier high? A comparison of four business cycle phases," European Economic Review, Elsevier, vol. 138(C).
    15. Sergio Destefanis & Mario Di Serio & Matteo Fragetta, 2022. "Regional multipliers across the Italian regions," Journal of Regional Science, Wiley Blackwell, vol. 62(4), pages 1179-1205, September.
    16. Jørgensen, Peter L. & Ravn, Søren H., 2022. "The inflation response to government spending shocks: A fiscal price puzzle?," European Economic Review, Elsevier, vol. 141(C).
    17. Christopher Biolsi, 2019. "Local Effects of a Military Spending Shock: Evidence from Shipbuilding in the 1930s," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 227-248, April.
    18. Chang Liu & Yinxi Xie, 2023. "Understanding Inflation Dynamics: The Role of Government Expenditures," Staff Working Papers 23-30, Bank of Canada.
    19. Li, Rong & Zhou, Yijiang, 2021. "Estimating local fiscal multipliers using political connections," China Economic Review, Elsevier, vol. 66(C).
    20. Maria Coelho, 2019. "Fiscal Stimulus in a Monetary Union: Evidence from Eurozone Regions," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(3), pages 573-617, September.

    More about this item

    Keywords

    Cross sectional methods; Dynamic heterogeneity; Partial pooling; Fiscal multipliers; Monetary pass-through;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:15330. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.