Fiscal Policy Shocks in the Euro Area and the US: An Empirical Assessment*

Burriel, Pablo; Castro, Francisco de; Garrote, Daniel; Gordo, Esther; Paredes, Joan; Pérez, Javier J.

doi:10.1111/j.1475-5890.2010.00114.x

Cited by 72 publications

(20 citation statements)

References 31 publications

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“…However, Perotti (2005) claims that a multiplier greater than unity can only be found in pre-1980s in the US, and it is smaller than multipliers found in four other OECD countries during 1960-2001. Burriel et al (2010) argue that multipliers are smaller than one in the US and EMU countries. However, they also show that the size of multipliers changes considerably once they control for the financial stress and government debt-to-GDP ratio.…”

Section: A Review Of Recent Empirical Studiesmentioning

confidence: 96%

Government spending multipliers in contraction and expansion

Qazizada

Stockhammer

2014

International Review of Applied Economics

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This paper investigates the impact of government spending on output and the size of the spending multiplier during periods of output contraction vs. expansion. It also investigates the impact of spending when the economy hits the nominal zero lower bound. It uses a panel of 21 advanced countries over the period of 1979-2011, applying a TSLS estimation technique. We find a spending multiplier of close to 1 during expansion and values of up to 3 during contractions. However, our results do not indicate a difference in the impact of spending during nominal zero lower bound periods.

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Section: A Review Of Recent Empirical Studiesmentioning

confidence: 96%

Government spending multipliers in contraction and expansion

Qazizada

Stockhammer

2014

International Review of Applied Economics

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“…The first strategy involves estimating Structural Vector Autoregressive Regressions (SVARs), using orthogonality assumptions to identify innovations in fiscal policy along the lines of Blanchard and Perotti (2002). Using mainly quarterly data, a large number of studies have employed this approach supplemented with a number of theoretically motivated identification assumptions, to analyse fiscal policy shocks over a large number of countries (e.g., Perotti (2008); Galí et al (2007); Burriel et al (2010)). The shocks are identified by exploiting decision lags in policy-making and information about the elasticity of fiscal variables to economic activity.…”

Section: Identification Of Fiscal Shocksmentioning

confidence: 99%

Government Spending Reloaded: Fundamentalness and Heterogeneity in Fiscal SVARs

Ellahie

Ricco

2012

SSRN Journal

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Using a large information approach and full Bayesian VAR techniques, we study the economic effects of fiscal policy shocks in the U.S. over the last five decades. We find that omitted variables can explain the well known sample instability of the estimates for the fiscal multiplier. We also find evidence of fiscal foresight and anticipation of the government spending shocks recovered from small Structural VARs (SVARs). Despite incorporating forecasts of government spending, Expectational VARs (EVARs) also show signs of fiscal foresight and anticipation. Conversely, the fiscal shocks recovered from a large information BVAR do not exhibit the same problem. Moreover, large information SVARs and EVARs deliver identical dynamic responses to fiscal shocks. Finally, we report multipliers and impulse response functions for aggregate government spending as well as for components of government spending, and find remarkably heterogeneous responses.JEL classification: C32, E32, E62. Keywords: structural VARs, large Bayesian VARs, fiscal shocks, government spending, government spending news, fiscal foresight, survey of professional forecasters.We would like to thank Lucrezia Reichlin, Paolo Surico and Domenico Giannone for their invaluable guidance and comments. We are also grateful to

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“…For European countries cumulative multipliers 3 over the same horizon are usually found to be above unity. However, Burriel et al (2010) for the euro area as a whole obtain multipliers below, although close to unity in the short term, while after 3 years it shrinks to some 0.6. These estimates fall within 1 This range can be compared to values for government investment multipliers presented in Coenen et al (2012) which proposes a range of 0.9 and 1.3 or 1.1 to 2.2 depending on the model discussed.…”

Section: Var-based Fiscal Multipliers In the Literaturementioning

confidence: 91%

Fiscal Multipliers and Public Debt Dynamics in Consolidations

Boussard

Castro

Salto

2013

Public Debt, Global Governance and Economic Dynamism

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The success of a consolidation in reducing the debt ratio depends crucially on the value of the multiplier, which measures the impact of consolidation on growth, and on the reaction of sovereign yields to such a consolidation. We present a theoretical framework that formalizes the response of the public debt ratio to fiscal consolidations in relation to the value of fiscal multipliers, the starting debt level and the cyclical elasticity of the budget balance. We also assess the role of markets confidence to fiscal consolidations under alternative scenarios. We find that with high levels of public debt and sizeable fiscal multipliers, debt ratios are likely to increase in the short term in response to fiscal consolidations. Hence, the typical horizon for a consolidation during crises episodes to reduce the debt ratio is two-three years, although this horizon depends critically on the size and persistence of fiscal multipliers and the reaction of financial markets. Anyway, such undesired debt responses are mainly short-lived. This effect is very unlikely in non-crisis times, as it requires a number of conditions difficult to observe at the same time, especially high fiscal multipliers.

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Fiscal Policy Shocks in the Euro Area and the US: An Empirical Assessment*

Abstract: 4Non-technical summary 5

Cited by 72 publications

References 31 publications

Government spending multipliers in contraction and expansion

Government spending multipliers in contraction and expansion

Government Spending Reloaded: Fundamentalness and Heterogeneity in Fiscal SVARs

Fiscal Multipliers and Public Debt Dynamics in Consolidations

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