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Estimating Fiscal Multipliers: News from a Nonlinear World

Author

Listed:
  • Giovanni Caggiano

    (Department of Economics and Management, University of Padova)

  • Efrem Castelnuovo

    () (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Valentina Colombo

    (Department of Economics and Management, University of Padova)

  • Gabriela Nodari

    (Department of Economics, University of Verona; and Australian School of Business, The University of New South Wales)

Abstract

We estimate nonlinear VARs to assess to what extent fiscal spending multipliers are countercyclical in the United States. We deal with the issue of non-fundamentalness due to fiscal foresight by appealing to sums of revisions of expectations of fiscal expenditures. This measure of anticipated fiscal shocks is shown to carry valuable information about future dynamics of public spending. Results based on generalized impulse responses suggest that fiscal spending multipliers in recessions are greater than one, but not statistically larger than those in expansions. However, nonlinearities arise when focusing on “extreme” events, i.e. deep recessions vs. strong expansionary periods.

Suggested Citation

  • Giovanni Caggiano & Efrem Castelnuovo & Valentina Colombo & Gabriela Nodari, 2014. "Estimating Fiscal Multipliers: News from a Nonlinear World," Melbourne Institute Working Paper Series wp2014n26, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  • Handle: RePEc:iae:iaewps:wp2014n26
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Fiscal news; fiscal foresight; fiscal spending multiplier; Smooth Transition Vector-AutoRegressions; extreme events;
    All these keywords.

    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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