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Fiscal Foresight and the Effects of Goverment Spending

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  • Forni, Mario
  • Gambetti, Luca

Abstract

We study the effects of government spending by using a structural, large dimensional, dynamic factor model. We find that the government spending shock is non-fundamental for the variables commonly used in the structural VAR literature, so that its impulse response functions cannot be consistently estimated by means of a VAR. Government spending raises both consumption and investment, with no evidence of crowding out. The impact multiplier is 1.7 and the long run multiplier is 0.6.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7840.

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Date of creation: May 2010
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Handle: RePEc:cpr:ceprdp:7840

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Related research

Keywords: fiscal policy; fundamentalness; government spending shock; non-fundamentalness; sign restrictions; structural factor model;

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References

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  5. Mario Forni & Luca Gambetti, 2008. "The dynamic e ects of monetary policy: A structural factor model approach," Center for Economic Research (RECent) 026, University of Modena and Reggio E., Dept. of Economics.
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