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Asymmetric Effects of Government Spending: Does the Level of Real Interest Rates Matter?

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Author Info
Michael B. Devereux
Woon Gyu Choi

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Abstract

This paper examines empirical issues on asymmetric effects of government spending. Increases in government spending under low real interest rates are not associated with the same increases in future tax liabilities as those under high real interest rates. Consequently, the negative impact from the Ricardian effect is smaller with lower real rates. Our empirical work on US data, using threshold regression models, provides new evidence that an expansionary government spending is more conducive to real activities when real rates are low. We also find asymmetric effects on interest rates and threshold effects associated with substitution between financing methods.

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Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 666.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:666

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Related research
Keywords: fiscal policy; government spending; Ricardian equivalence; real interest rates; regime switching; threshold vector autoregression;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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Full references

Cited by:
(explanations, 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.)

  1. Troy Davig & Eric Leeper, 2006. "Endogenous monetary policy regime change," Research Working Paper RWP 06-11, Federal Reserve Bank of Kansas City. [Downloadable!]
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