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Time-varying government spending multipliers in the UK

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  • Glocker, Christian
  • Sestieri, Giulia
  • Towbin, Pascal

Abstract

We study government spending multipliers of the UK economy using a time-varying parameter factor augmented vector autoregressive model (TVP-FAVAR) over the period 1966:Q1–2015:Q4. We show that government spending multipliers vary over time and that most of the variation is cyclical: multipliers for GDP are typically above one in recessions and below one in expansions. Regarding the drivers of the cyclical variation, our results are consistent with theories emphasizing the role of financial frictions and economic slack. We find no evidence that multipliers are larger at the zero lower bound. Structural factors seem to play a lesser role and multipliers do not exhibit a clear trend. We conclude that fiscal policy recommendations should take into account the position of the economy in the cycle in assessing their effectiveness and that the impact of government spending shocks is limited in the UK in non-recessionary periods.

Suggested Citation

  • Glocker, Christian & Sestieri, Giulia & Towbin, Pascal, 2019. "Time-varying government spending multipliers in the UK," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 180-197.
  • Handle: RePEc:eee:jmacro:v:60:y:2019:i:c:p:180-197
    DOI: 10.1016/j.jmacro.2019.02.003
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    Cited by:

    1. Igor Chugunov & Valentina Makohon & Valerii Korovii, 2020. "Formation Of Budget Expenditure In The System Of Fiscal Regulation," Baltic Journal of Economic Studies, Publishing house "Baltija Publishing", vol. 6(2).

    More about this item

    Keywords

    Government spending shocks; Fiscal transmission mechanism; Time-varying parameter models; Business cycle;

    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
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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