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What Determines Government Spending Multipliers?

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  • Corsetti, Giancarlo
  • Meier, André
  • Müller, Gernot

Abstract

This paper studies how the effects of government spending vary with the economic environment. Using a panel of OECD countries, we identify fiscal shocks as residuals from an estimated spending rule and trace their macroeconomic impact under different conditions regarding the exchange rate regime, public indebtedness, and health of the financial system. The unconditional responses to a positive spending shock broadly confirm earlier findings. However, conditional responses differ systematically across exchange rate regimes, as real appreciation and external deficits occur mainly under currency pegs. We also find output and consumption multipliers to be unusually high during times of financial crisis.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9010.

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Date of creation: Mar 2012
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Handle: RePEc:cpr:ceprdp:9010

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Keywords: exchange rate regime; financial crisis; fiscal policy; fiscal rules; government spending; Multiplier; public finances;

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References

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Citations

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Cited by:
  1. Jacopo Cimadomo, 2011. "Real-time data and fiscal policy analysis: a survey of the literature," Working Papers 11-25, Federal Reserve Bank of Philadelphia.
  2. Giancarlo Corsetti & Gernot J. Müller, 2011. "Multilateral Economic Cooperation and the International Transmission of Fiscal Policy," NBER Working Papers 17708, National Bureau of Economic Research, Inc.
  3. Roel Beetsma & Massimo Giuliodori, 2011. "The Effects of Government Purchases Shocks: Review and Estimates for the EU," Economic Journal, Royal Economic Society, vol. 121(550), pages F4-F32, February.
  4. Phillip Anthony O’Hara, 2013. "Policies and Institutions for Moderating Deep Recessions, Debt Crises and Financial Instabilities," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(1), pages 19-49, March.
  5. Giancarlo Corsetti & Keith Kuester & Andre Meier & Gernot J. Muller, 2011. "Soverign risk and the effects of fiscal retrenchment in deep recessions," Working Papers 11-43, Federal Reserve Bank of Philadelphia.
  6. Giancarlo Corsetti & Michael P. Devereux & John Hassler & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2011. "Chapter 1: The Macroeconomic Outlook," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 17-69, 02.
  7. Julio A. CARRILLO & Celine POILLY, 2010. "On the Recovery Path during a Liquidity Trap: Do Financial Frictions Matter for Fiscal Multipliers?," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2010034, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  8. Giancarlo Corsetti & Keith Kuester & Gernot J. Müller, 2011. "Floats, Pegs and the Transmission of Fiscal Policy," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 14(2), pages 5-38, August.
  9. Timbeau, Xavier & Blot, Christophe & Cochard, Marion & Ducoudre, Bruno & Falah, Amel & Heyer, Eric & Le Bayon, Sabine & Mathieu, Catherine & Péléraux, Hervé & Plane, Mathieu & Rifflart, Christine &, 2012. "débacle de l'austérité: perspectives économiques 2012 2013 pour l'économie mondiale," Open Access publications from Sciences Po info:hdl:2441/f4rshpf3v1u, Sciences Po.
  10. Jasper Lukkezen & Coen Teulings, 2013. "Optimal fiscal policy," CPB Discussion Paper 242, CPB Netherlands Bureau for Economic Policy Analysis.
  11. Julio Carrillo & Celine Poilly, 2013. "Online Appendix to "How do financial frictions affect the spending multiplier during a liquidity trap?"," Technical Appendices 12-54, Review of Economic Dynamics.

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