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The Government Spending Multiplier at the Zero Lower Bound: Evidence from the United States

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  • DI SERIO, Mario

    (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy)

  • FRAGETTA, Matteo

    (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy)

  • GASTEIGER, Emanuel

    (Freie Universität Berlin, Department of Economics)

Abstract

We estimate state-dependent government spending multipliers for the United States. We use an Interacted Vector Autoregression (IVAR) model to capture the time-varying monetary policy characteristics including the recent zero interest rate lower bound (ZLB) state. We identify government spending shocks by sign restrictions and use a government spending growth forecast series to account for the effects of anticipated fiscal policy. In our baseline specification we find that government spending multipliers range from 3.4 to 3.7 at the ZLB. Away from the ZLB, multipliers range from 1.5 to 2.7. Next, we address the limited information problem typically inherent in VARs by the help of a Factor-Augmented IVAR (FAIVAR). We find that multipliers are lower in this case, ranging from 2.0 to 2.1 at the ZLB and between 1.5 and 1.8 away from it. Thus, in both specifications we find that multipliers are higher, when the interest rate is lower. Our results are consistent with recent theories that predict larger multipliers at the ZLB.

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  • DI SERIO, Mario & FRAGETTA, Matteo & GASTEIGER, Emanuel, 2017. "The Government Spending Multiplier at the Zero Lower Bound: Evidence from the United States," CELPE Discussion Papers 150, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
  • Handle: RePEc:sal:celpdp:0150
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    1. Di Serio, Mario & Fragetta, Matteo & Melina, Giovanni, 2021. "The impact of r-g on Euro-Area government spending multipliers," Journal of International Money and Finance, Elsevier, vol. 119(C).
    2. Amendola, Adalgiso & Di Serio, Mario & Fragetta, Matteo & Melina, Giovanni, 2020. "The euro-area government spending multiplier at the effective lower bound," European Economic Review, Elsevier, vol. 127(C).
    3. AMENDOLA, Adalgiso & DI SERIO, Mario & FRAGETTA, Matteo, 2018. "The Government Spending Multiplier at the Zero Lower Bound: Evidence from the Euro Area," CELPE Discussion Papers 153, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
    4. Mario Di Serio & Matteo Fragetta & Emanuel Gasteiger & Giovanni Melina, 2022. "The Euro Area Government Spending Multiplier in Demand- and Supply-Driven Recessions," CESifo Working Paper Series 9678, CESifo.

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    More about this item

    Keywords

    Interacted VAR; Fiscal Policy; Government Spending; Zero Interest Rate Lower Bound;
    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
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • 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
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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