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Models of government expenditure multipliers

Author

Listed:
  • Sebastian Dyrda
  • José-Víctor Ríos-Rull

Abstract

In this note, we demonstrate and analyze the inability of standard neoclassical models to generate accurate estimates of the fiscal multiplier (that is, the macroeconomic response to increased government spending). We then examine whether estimates can be improved by incorporating recently developed theory on demand-induced productivity increases into neoclassical models. We find that neoclassical models modified in this fashion produce considerably better estimates, but they remain unable to generate anything close to an accurate value of the fiscal multiplier.

Suggested Citation

  • Sebastian Dyrda & José-Víctor Ríos-Rull, 2012. "Models of government expenditure multipliers," Economic Policy Paper 12-2, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmep:12-2
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    References listed on IDEAS

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    7. Eric M. Leeper & Nora Traum & Todd B. Walker, 2017. "Clearing Up the Fiscal Multiplier Morass," American Economic Review, American Economic Association, vol. 107(8), pages 2409-2454, August.
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    Cited by:

    1. Axelle Ferriere & Gaston Navarro, 2025. "The Heterogeneous Effects of Government Spending: It’s All About Taxes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 92(2), pages 1061-1125.
    2. Zhen Huo & José-Víctor Ríos-Rull, 2013. "Realistic neoclassical multiplier," Economic Policy Paper 13-5, Federal Reserve Bank of Minneapolis.
    3. Jesús Rodríguez-López & Mario Solís-García, 2018. "Defense spending and fiscal multipliers: it's all in the variance," Working Papers 18.06, Universidad Pablo de Olavide, Department of Economics.
    4. Zhen Huo & José-Víctor Ríos-Rull, 2016. "The Great Recession and Financial Shocks," Economic Policy Paper 16-3, Federal Reserve Bank of Minneapolis.

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