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What Determines Government Spending Multipliers?

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  • Gernot Müller
  • André Meier
  • Giancarlo Corsetti

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 International Monetary Fund in its series IMF Working Papers with number 12/150.

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Length: 46
Date of creation: 01 Jun 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/150

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Keywords: Budget deficits; Currency pegs; Government expenditures; Public debt; government spending; exchange rate; fiscal policy; real exchange rate; public finances; exchange rate regime; government spending shocks; fiscal stimulus; exchange rate regimes; exchange rates; fiscal shocks; fiscal multipliers; exchange rate peg; flexible exchange rate; government spending multipliers; flexible exchange rates; fiscal multiplier; real effective exchange rate; fiscal data; fiscal expansion; effective exchange rate; fiscal policy rule; fixed exchange rates; public spending; aggregate demand; fiscal consolidations; fiscal measures; fiscal policies; real exchange rates; defense spending; fiscal response; exchange rate depreciation; fiscal rule; fixed exchange rate; fiscal retrenchment; fiscal policy response; foreign debt; classification of exchange rate; fiscal sustainability; government budget; spending cuts; exchange rate appreciation; tax cuts; fiscal measure; tax rebates; fiscal austerity; fiscal innovations; fiscal episodes; flexible exchange rate regimes; fiscal policy rules; budget constraint; fiscal authorities; tax revenue; expansionary fiscal; exchange rate economics; public debt reverse; budget deficit; fiscal policy on consumption; exchange rate dynamics; fiscal balances; fiscal stress; fiscal federalism; limited exchange rate flexibility; nominal exchange rate; fiscal positions; fiscal contractions; fiscal expansions; government budget constraint; fiscal consolidation; exchange rate flexibility; exchange rate arrangements; fiscal policy vector; public deficits; fiscal variable; floating exchange rate regimes; budget process; budget adjustment policy; real exchange rate depreciation; fiscal stabilization; currency depreciation; tax rates; fiscal crisis; fiscal tightening; fiscal policy action; discretionary fiscal policy; tax policy; account deficits; government expenditure; budget adjustment;

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References

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