Advanced Search
MyIDEAS: Login to save this paper or follow this series

When Does Government Debt Crowd Out Investment?

Contents:

Author Info

  • Shu-Chun S. Yang

    (International Monetary Fund)

  • Nora Traum

    (North Carolina State University)

Abstract

We examine when government debt crowds out investment for the U.S. economy using an estimated New Keynesian model with a detailed fiscal specification. The estimation accounts for the interaction between monetary and fiscal policies. Whether private investment is crowded in or out in the short term depends on the fiscal or monetary shock that triggers a debt expansion: Higher debt can crowd in investment despite a higher real interest rate for a reduction in capital tax rates or an increase in productive government investment. Contrary to the conventional view of crowding out, no systematic relationship among debt, the real interest rate, and investment exists. This result offers an explanation as to why empirical studies that have focused on the reduced-form relationship between interest rates and debt are often inconclusive. At longer horizons, distortionary financing is important for the negative investment response to a debt expansion.

Download Info

If 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.
File URL: http://www.economicdynamics.org/meetpapers/2011/paper_479.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 479.

as in new window
Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:red:sed011:479

Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Email:
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

References listed on IDEAS
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.:
as in new window
  1. Andrea Colciago, 2011. "Rule‐of‐Thumb Consumers Meet Sticky Wages," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 43, pages 325-353, 03.
  2. Del Negro, Marco & Schorfheide, Frank & Smets, Frank & Wouters, Raf, 2005. "On the fit and forecasting performance of New-Keynesian models," Working Paper Series, European Central Bank 0491, European Central Bank.
  3. Leeper, Eric M. & Yang, Shu-Chun Susan, 2008. "Dynamic scoring: Alternative financing schemes," Journal of Public Economics, Elsevier, Elsevier, vol. 92(1-2), pages 159-182, February.
  4. Schmitt-Grohé, Stephanie & Uribe, Martín, 2004. "Optimal Operational Monetary Policy in the Christiano-Eichenbaum-Evans Model of the US Business Cycle," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4654, C.E.P.R. Discussion Papers.
  5. Guvenen, Fatih, 2006. "Reconciling conflicting evidence on the elasticity of intertemporal substitution: A macroeconomic perspective," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(7), pages 1451-1472, October.
  6. Eric M. Leeper, Michael Plante, Nora Traum, 2009. "Dynamics Of Fiscal Financing In The United States," Caepr Working Papers, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington 2009-012, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  7. Marco Ratto & Werner Roeger, 2005. "An estimated open-economy model for the EURO area," Computing in Economics and Finance 2005, Society for Computational Economics 84, Society for Computational Economics.
  8. Hafedh Bouakez & Nooman Rebei, 2007. "Why does private consumption rise after a government spending shock?," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 40(3), pages 954-979, August.
  9. Jones, John Bailey, 2002. "Has fiscal policy helped stabilize the postwar U.S. economy?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(4), pages 709-746, May.
  10. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, Elsevier, vol. 27(1), pages 129-147, February.
  11. Alvarez-Lois, Pedro & Harrison, Richard & Piscitelli, Laura & Scott, Alasdair, 2008. "On the application and use of DSGE models," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 32(8), pages 2428-2452, August.
  12. Troy Davig & Eric M. Leeper, 2005. "Fluctuating Macro Policies and the Fiscal Theory," NBER Working Papers 11212, National Bureau of Economic Research, Inc.
  13. Pereira, Alfredo M. & de Frutos, Rafael Flores, 1999. "Public Capital Accumulation and Private Sector Performance," Journal of Urban Economics, Elsevier, vol. 46(2), pages 300-322, September.
  14. Evans, Paul & Karras, Georgios, 1994. "Are Government Activities Productive? Evidence from a Panel of U.S. States," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 1-11, February.
  15. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, American Economic Association, vol. 83(3), pages 315-34, June.
  16. Sarah Zubairy, 2010. "On Fiscal Multipliers: Estimates from a Medium Scale DSGE Model," Working Papers, Bank of Canada 10-30, Bank of Canada.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Shu-Chun S. Yang & Todd B. Walker & Eric M. Leeper, 2010. "Government Investment and Fiscal Stimulus," IMF Working Papers 10/229, International Monetary Fund.
  2. Aliya Algozhina, 2012. "Monetary and Fiscal Policy Interactions in an Emerging Open Economy: a Non-Ricardian DSGE Approach," FIW Working Paper series, FIW 094, FIW, revised Dec 2012.
  3. Konstantinos Angelopoulos & Stylianos Asimakopoulos & James Malley, 2013. "The optimal distribution of the tax burden over the business cycle," Working Papers, Business School - Economics, University of Glasgow 2013_16, Business School - Economics, University of Glasgow.
  4. Huixin Bi & Eric M. Leeper & Campbell Leith, 2013. "Uncertain Fiscal Consolidations," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 0, pages F31-F63, 02.
  5. Shu-Chun S. Yang & Nora Traum, 2010. "Monetary and Fiscal Policy Interactions in the Post-War U.S," IMF Working Papers 10/243, International Monetary Fund.
  6. Eric M. Leeper & Todd B. Walker & Shu-Chun Susan Yang, 2009. "Fiscal Foresight and Information Flows," NBER Working Papers 14630, National Bureau of Economic Research, Inc.
  7. Bi, Huixin & Leeper, Eric M. & Leith, Campbell, 2012. "Uncertain Fiscal Consolidations," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2012-09, Scottish Institute for Research in Economics (SIRE).
  8. Müller, Ulrich K., 2012. "Measuring prior sensitivity and prior informativeness in large Bayesian models," Journal of Monetary Economics, Elsevier, Elsevier, vol. 59(6), pages 581-597.
  9. Eric M. Leeper & Nora Traum & Todd B. Walker, 2011. "Clearing Up the Fiscal Multiplier Morass," NBER Working Papers 17444, National Bureau of Economic Research, Inc.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:red:sed011:479. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.