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

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  • Alban Moura

Abstract

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.

Suggested Citation

  • Alban Moura, 2016. "The Effects of Government Spending Endogeneity on Estimated Multipliers in the U.S," Annals of Economics and Statistics, GENES, issue 121-122, pages 359-384.
    • Handle: RePEc:adr:anecst:y:2016:i:121-122:p:359-384
    DOI: 10.15609/annaeconstat2009.121-122.359
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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