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The Effects of Government Spending Endogeneity on Estimated Multipliers in the U.S

Listed author(s):
  • Alban Moura

This paper uses an estimated sticky-price model to identify endogenous movements in government consumption in the U.S. economy. Two feedback effects are considered, one originating from the stock of public debt, and one from contemporaneous output. The data provides significant statistical evidence in favor of such mechanisms, even though a subsample analysis reveals that their strength may have decreased over time. Monte Carlo simulations assessing a DSGE model with exogenous spending and various identified VARs suggest that failing to account for these feedbacks may induce a severe upward bias in estimated multipliers.

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File URL: http://www.jstor.org/stable/10.15609/annaeconstat2009.121-122.359
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Article provided by GENES in its journal Annals Of Economics and Statistics.

Volume (Year): (2016)
Issue (Month): 121-122 ()
Pages: 359-384

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Handle: RePEc:adr:anecst:y:2016:i:121-122:p:359-384
DOI: 10.15609/annaeconstat2009.121-122.359
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  1. John Bailey Jones, 1999. "Has Fiscal Policy Helped Stabilize the Postwar U.S. Economy?," Discussion Papers 99-03, University at Albany, SUNY, Department of Economics.
  2. repec:ecb:ecbwps:20111429 is not listed on IDEAS
  3. Coenen, Gunter & Straub, Roland & Trabandt, Mathias, 2011. "Fiscal policy and the Great Recession in the euro area," MPRA Paper 76688, University Library of Munich, Germany.
  4. Saroj Bhattarai & Jae Won Lee & Woong Yong Park, 2012. "Monetary-Fiscal Policy Interactions and Indeterminacy in Postwar US Data," American Economic Review, American Economic Association, vol. 102(3), pages 173-178, May.
  5. Ryan Chahrour & Stephanie Schmitt-Grohé & Martín Uribe, 2010. "A Model-Based Evaluation of the Debate on the Size of the Tax Multiplier," NBER Working Papers 16169, National Bureau of Economic Research, Inc.
  6. Thorsten Drautzburg & Harald F. Uhlig, 2011. "Fiscal stimulus and distortionary taxation," FRB Atlanta CQER Working Paper 2011-01, Federal Reserve Bank of Atlanta.
  7. Uhlig, Harald, 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," CEPR Discussion Papers 2137, C.E.P.R. Discussion Papers.
  8. Fève, Patrick & Matheron, Julien & Sahuc, Jean-Guillaume, 2012. "A Pitfall with DSGE-Based, Estimated, Government Spending Multipliers," IDEI Working Papers 708, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. Clemens, Jeffrey & Miran, Stephen, 2010. "The effects of state budget cuts on employment and income," MPRA Paper 38715, University Library of Munich, Germany.
  10. Thorsten Drautzburg & Harald Uhlig, 2015. "Online Appendix to "Fiscal Stimulus and Distortionary Taxation"," Technical Appendices 14-44, Review of Economic Dynamics.
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