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The analytics of SVARs: a unified framework to measure fiscal multipliers

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  • Dario Caldara
  • Christophe Kamps

Abstract

Does fiscal policy stimulate output? SVARs have been used to address this question but no stylized facts have emerged. We derive analytical relationships between the output elasticities of fiscal variables and fiscal multipliers. We show that standard identification schemes imply different priors on elasticities, generating a large dispersion in multiplier estimates. We then use extra-model information to narrow the set of empirically plausible elasticities, allowing for sharper inference on multipliers. Our results for the U.S. for the period 1947-2006 suggest that the probability of the tax multiplier being larger than the spending multiplier is below 0.5 at all horizons.

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  • Dario Caldara & Christophe Kamps, 2012. "The analytics of SVARs: a unified framework to measure fiscal multipliers," Finance and Economics Discussion Series 2012-20, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2012-20
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    References listed on IDEAS

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    1. Leeper, Eric M. & Plante, Michael & Traum, Nora, 2010. "Dynamics of fiscal financing in the United States," Journal of Econometrics, Elsevier, vol. 156(2), pages 304-321, June.
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    5. Mario Forni & Luca Gambetti, 2010. "Fiscal Foresight and the Effects of Government Spending," UFAE and IAE Working Papers 851.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
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    9. Caldara, Dario & Kamps, Christophe, 2008. "What are the effects of fiscal policy shocks? A VAR-based comparative analysis," Working Paper Series 877, European Central Bank.
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    12. Mertens, Karel & Ravn, Morten O., 2014. "A reconciliation of SVAR and narrative estimates of tax multipliers," Journal of Monetary Economics, Elsevier, vol. 68(S), pages 1-19.
    13. Linnemann, Ludger & Schabert, Andreas, 2003. " Fiscal Policy in the New Neoclassical Synthesis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 911-929, December.
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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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