Transmission of Government Spending Shocks in the Euro Area: Time Variation and Driving Forces
AbstractThis paper provides new evidence on the effects of government spending shocks and the fiscal transmission mechanism in the euro area for the period 1980-2008. Our contribution is two-fold. First, we investigate changes in the macroeconomic impact of government spending shocks using time-varying structural VAR techniques. The results show that the short-run effectiveness of government spending in stabilizing real GDP and private consumption has increased until the end-1980s but it has decreased thereafter. Moreover, government spending multipliers at longer horizons have declined substantially over the sample period. We also observe a weaker response of real wages and a stronger response of the nominal interest rate to spending shocks. Second, we provide econometric evidence on the driving forces behind the observed time variation of spending multipliers. We find that a higher ratio of credit to households over GDP, a smaller share of government investment and a larger share of public wages over total government spending have led to decreasing contemporaneous multipliers. At the same time, our results indicate that higher government debt-to-GDP ratios have negatively affected long-term multipliers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-021/2.
Date of creation: 12 Feb 2010
Date of revision:
Contact details of provider:
Web page: http://www.tinbergen.nl
Government spending shocks; Fiscal transmission mechanism; Structural change; Bayesian analysis; Structural vector autoregressions; Time-varying parameter models;
Other versions of this item:
- Markus Kirchner & Jacopo Cimadomo & Sebastian Hauptmeier, 2010. "Transmission of government spending shocks in the euro area: Time variation and driving forces," Working Paper Series 1219, European Central Bank.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- 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
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-26 (All new papers)
- NEP-CBA-2011-02-26 (Central Banking)
- NEP-EEC-2011-02-26 (European Economics)
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.:
- Eric M. Leeper & Todd B. Walker & Shu-Chun Susan Yang, 2009.
"Government Investment and Fiscal Stimulus in the Short and Long Runs,"
NBER Working Papers
15153, National Bureau of Economic Research, Inc.
- Eric M. Leeper, Todd B. Walker, And Shu-Chun S. Yang, 2009. "Government Investment And Fiscal Stimulus In The Short And Long Runs," Caepr Working Papers 2009-011, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
- Antonello D'Agostino & Luca Gambetti & Domenico Giannone, 2013.
"Macroeconomic forecasting and structural change,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 28(1), pages 82-101, 01.
- Antonello D’Agostino & Luca Gambetti & Domenico Giannone, 2010. "Macroeconomic forecasting and structural change," Working Paper Series 1167, European Central Bank.
- D'Agostino, Antonello & Gambetti, Luca & Giannone, Domenico & Giannone, Domenico, 2009. "Macroeconomic Forecasting and Structural Change," Research Technical Papers 8/RT/09, Central Bank of Ireland.
- D Agostino, Antonello & Gambetti, Luca & Giannone, Domenico, 2009. "Macroeconomic Forecasting and Structural Change," CEPR Discussion Papers 7542, C.E.P.R. Discussion Papers.
- Antonello D'Agostino & Luca Gambetti & Domenico Giannone, 2009. "Macroeconomic Forecasting and Structural Change," Working Papers ECARES 2009_020, ULB -- Universite Libre de Bruxelles.
- Agnès Bénassy-Quéré & Jacopo Cimadomo, 2006. "Changing Patterns of Domestic and Cross-Border Fiscal Policy Multipliers in Europe and the US," Working Papers 2006-24, CEPII research center.
- Michal Franta & Jan Libich & Petr Stehlik, 2012.
"Tracking Monetary-Fiscal Interactions Across Time and Space,"
2012/06, Czech National Bank, Research Department.
- Michal Franta & Jan Libich & Petr StehlÃk, 2012. "Tracking Monetary-Fiscal Interactions across Time and Space," CAMA Working Papers 2012-40, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Fabio Canova & Evi Pappa, 2011.
"Fiscal policy, pricing frictions and monetary accommodation,"
Economics Working Papers
1268, Department of Economics and Business, Universitat Pompeu Fabra.
- Fabio Canova & Evi Pappa, 2011. "Fiscal policy, pricing frictions and monetary accommodation," Economic Policy, CEPR & CES & MSH, vol. 26(68), pages 555-598, October.
- Fabio Canova & Evi Pappa, 2011. "Fiscal Policy, Pricing Frictions and Monetary Accommodation," Working Papers 549, Barcelona Graduate School of Economics.
- Jacopo Cimadomo & Sebastian Hauptmeier & Sergio Sola, 2011.
"Identifying the effects of government spending shocks with and without expected reversal - an approach based on U.S. real-time data,"
Working Paper Series
1361, European Central Bank.
- Jacopo Cimadomo, Sebastian Hauptmeier, Sergio Sola, 2011. "Identifying the Effects of Government Spending Shocks with and without Expected Reversal: an Approach Based on U.S. Real-Time Data," IHEID Working Papers 12-2011, Economics Section, The Graduate Institute of International Studies.
- Valerie A. Ramey, 2011. "Can Government Purchases Stimulate the Economy?," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 673-85, September.
- Roman Horváth & Michal Franta & Marek Rusnák, 2012.
"Evaluating Changes in the Monetary Transmission Mechanism in the Czech Republic,"
Working Papers IES
2012/11, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2012.
- Michal Franta & Roman Horvath & Marek Rusnak, 2011. "Evaluating Changes in the Monetary Transmission Mechanism in the Czech Republic," Working Papers 2011/13, Czech National Bank, Research Department.
- Michal Franta, 2011. "Identification of Monetary Policy Shocks in Japan Using Sign Restrictions within the TVP-VAR Framework," IMES Discussion Paper Series 11-E-13, Institute for Monetary and Economic Studies, Bank of Japan.
- Giovanni Callegari & Giovanni Melina & Nicoletta Batini, 2012. "Successful Austerity in the United States, Europe and Japan," IMF Working Papers 12/190, International Monetary Fund.
- Berg, Tim Oliver, 2011. "Technology news and the U.S. economy: Time variation and structural changes," MPRA Paper 35361, University Library of Munich, Germany.
- Rafiq, Sohrab & Zeufack, Albert, 2012. "Fiscal multipliers over the growth cycle : evidence from Malaysia," Policy Research Working Paper Series 5982, The World Bank.
- Banerjee, A. & Malik, S., 2012. "The changing role of expectations in US monetary policy: A new look using the Livingston Survey," Working papers 376, Banque de France.
- 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.
- Jan Libich & James Savage & Carl Walsh, 2011. "Monetary–Fiscal Interactions: How to Improve Policy Outcomes?," Economic Papers, The Economic Society of Australia, vol. 30(1), pages 1-5, 03.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (webmaster-tinbergen).
If references are entirely missing, you can add them using this form.