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Government spending, GDP and exchange rate in Zero Lower Bound: measuring causality at multiple horizons

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  • MAO TAKONGMO, Charles Olivier

Abstract

This paper assesses the causality between government spending and gross domestic product in the United States at multiple horizons. We compare the Granger causality for normal periods (1959Q1 to 2006 Q4) with the causality for the ZLB period (2007Q1 to 2015Q4). We show that the Granger causality measures between government spending and GDP are very high and persistent in the ZLB period, but only if the exchange rate is not taken into account. When the exchange rate is taken into account, the Granger causality between government spending and GDP becomes very small and non-persistent.

Suggested Citation

  • MAO TAKONGMO, Charles Olivier, 2016. "Government spending, GDP and exchange rate in Zero Lower Bound: measuring causality at multiple horizons," MPRA Paper 79703, University Library of Munich, Germany, revised 02 Jun 2017.
  • Handle: RePEc:pra:mprapa:79703
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    File URL: https://mpra.ub.uni-muenchen.de/79703/1/MPRA_paper_79703.pdf
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    References listed on IDEAS

    as
    1. Deirdre N. McCloskey & Stephen T. Ziliak, 1996. "The Standard Error of Regressions," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 97-114, March.
    2. repec:taf:jnlbes:v:34:y:2016:i:4:p:574-589 is not listed on IDEAS
    3. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78-121.
    4. Zhang, Hui Jun & Dufour, Jean-Marie & Galbraith, John W., 2016. "Exchange rates and commodity prices: Measuring causality at multiple horizons," Journal of Empirical Finance, Elsevier, vol. 36(C), pages 100-120.
    5. Ilzetzki, Ethan & Mendoza, Enrique G. & Végh, Carlos A., 2013. "How big (small?) are fiscal multipliers?," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 239-254.
    6. Dufour, Jean-Marie & Taamouti, Abderrahim, 2010. "Short and long run causality measures: Theory and inference," Journal of Econometrics, Elsevier, vol. 154(1), pages 42-58, January.
    7. Georgios Karras, 2012. "Trade openness and the effectiveness of fiscal policy: some empirical evidence," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 59(3), pages 303-313, September.
    8. Jean-Marie Dufour & Eric Renault, 1998. "Short Run and Long Run Causality in Time Series: Theory," Econometrica, Econometric Society, vol. 66(5), pages 1099-1126, September.
    9. Michael W. McCracken & Serena Ng, 2016. "FRED-MD: A Monthly Database for Macroeconomic Research," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 34(4), pages 574-589, October.
    10. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    11. repec:bla:reviec:v:25:y:2017:i:5:p:1046-1077 is not listed on IDEAS
    12. Charles Olivier Mao Takongmo, 2017. "Government-spending multipliers and the zero lower bound in an open economy," Review of International Economics, Wiley Blackwell, vol. 25(5), pages 1046-1077, November.
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    Cited by:

    1. LEBIHAN, Laetitia & MAO TAKONGMO, Charles Olivier & McKELLIPS, Fanny, 2017. "Health Inequalities for Immigrants in Canada : Quebec versus the Rest of Canada," MPRA Paper 79970, University Library of Munich, Germany, revised Jun 2017.

    More about this item

    Keywords

    Zero Lower Bound; Causality Measures;

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • 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
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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