Suchergebnisse

We estimate state-dependent government spending multipliers for the United States. We use a Factor-Augmented Interacted Vector Autoregression (FAIVAR) model. This allows us to capture the time-varying monetary policy characteristics including the recent zero interest rate lower bound (ZLB) state, to account for the state of the business cycle, and to address the limited information problem typically inherent in VARs. 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 in a recession range from 3:56 to 3:79 at the ZLB. Away from the ZLB, multipliers in recessions range from 2:31 to 3:05. Several robustness analyses confirm that multipliers are higher, when the interest rate is lower and that multipliers in recessions exceed multipliers in expansions. Our results are consistent with theories that predict larger multipliers at the ZLB.

We estimate government spending multipliers in demand- and supply-driven recessions for the Euro Area. Multipliers in a moderately demand-driven recession are 2-3 times larger than in a moderately supply-driven recession, with the difference between multipliers being non-zero with very high probability. More generally, multipliers are inversely correlated with the deviation of inflation from its trend, implying that the more demand-driven a recession, the higher the multiplier. Median multipliers range from -0.5 in supply-driven recessions to about 2 in demand-driven recessions. The econometric approach leverages a factor-augmented interacted vector-autoregression model purified of expectations (FAIPVAR-X). The model captures the time-varying state of the business-cycle including strongly and moderately demand- and supply-driven recessions, by taking the whole distribution of inflation deviations from trend into account.