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Government Purchases Reloaded : Informational Insufficiency and Heterogeneity in Fiscal VARs

Author

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  • Ellahie, Atif

    (David Eccles School of Business, University of Utah)

  • Ricco, Giovanni

    (Department of Economics, The University of Warwick)

Abstract

Using a large Bayesian VAR, we approximate the flow of information received by economic agents to investigate the effects of changes to government purchases. We document robust evidence that informational insufficiency in conventional models explains inconsistent results across samples and commonly employed identifications in recursive Structural VARs and Expectational VARs. Furthermore, we report heterogeneous effects of components of government purchases. While aggregate government purchases do not appear to produce strong stimulative effects with output multiplier around 0.7, government investment components have multipliers well above unity. State and local consumption, which captures investment in education and health, elicits a strong response.

Suggested Citation

  • Ellahie, Atif & Ricco, Giovanni, 2017. "Government Purchases Reloaded : Informational Insufficiency and Heterogeneity in Fiscal VARs," The Warwick Economics Research Paper Series (TWERPS) 1138, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:1138
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    References listed on IDEAS

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    Cited by:

    1. Rangan Gupta & Chi Keung Marco Lau & Stephen M. Miller & Mark E. Wohar, 2017. "U.S. Fiscal Policy and Asset Prices: The Role of Partisan Conflict," Working papers 2017-10, University of Connecticut, Department of Economics.
    2. Miranda-Agrippino, Silvia & Ricco, Giovanni, 2018. "Bayesian Vector Autoregressions," The Warwick Economics Research Paper Series (TWERPS) 1159, University of Warwick, Department of Economics.
    3. François Guillemin & Hervé Alexandre & Catherine Refait-Alexandre, 2015. "Downgrades of sovereign credit ratings and impact on banks CDS spread: does disclosure by banks improve stability?," Post-Print hal-01622782, HAL.
    4. Dimitris Korobilis, 2018. "Machine Learning Macroeconometrics: A Primer," Working Paper series 18-30, Rimini Centre for Economic Analysis.
    5. repec:eee:jmacro:v:57:y:2018:i:c:p:71-82 is not listed on IDEAS

    More about this item

    Keywords

    fiscal shocks ; government purchases ; fiscal foresight ; Large Bayesian; VARs;

    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
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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