On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint

Debortoli, Davide; Galı́, Jordi; Gambetti, Luca

doi:10.3386/w25820

Cited by 65 publications

(92 citation statements)

References 26 publications

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“…Structural factors -in the form of fiscal space -also play a role, as in Corsetti et al (2012), Ilzetzki et al (2013) and Nickel and Tudyka (2014). Finally, our results are consistent with the literature that does not find systematically higher fiscal multipliers at the ZLB (Swanson and Williams, 2014;Bredemeier et al, 2015;Debortoli et al, 2018;Li and Tian, 2018). Overall, however, cyclical factors dominate structural factors in explaining the variation of the UK government spending multiplier of output.…”

Section: Which Factors Drive the Variation Of Uk Government Spending supporting

confidence: 90%

“…According to these papers, the central bank will not respond to a government spending shock at the zero lower bound, generating larger multipliers. The evidence on fiscal multipliers at the ZLB is, however, mixed since other papers suggest that the ZLB is not a sufficient condition per se to have higher average multipliers (Swanson and Williams, 2014;Bredemeier et al, 2015;Debortoli et al, 2018;Li and Tian, 2018). 20 In the regression presented in the next section, we include a ZLB 19 Their measure of financial market stress is based upon a composite index involving data on three financial market segments: (i) equity markets, (ii) bond markets, and (iii) foreign exchange markets.…”

Section: Gdp Deflatormentioning

confidence: 99%

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Time-Varying Fiscal Spending Multipliers in the UK

2017

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We study government spending multipliers of the UK economy using a time-varying parameter factor augmented vector autoregressive model (TVP-FAVAR) over the period 1966:Q1-2015:Q4. We show that government spending multipliers vary over time and that most of the variation is cyclical: multipliers for GDP are typically above one in recessions and below one in expansions. Regarding the drivers of the cyclical variation, our results are consistent with theories emphasizing the role of financial frictions and economic slack. We find no evidence that multipliers are larger at the zero lower bound. Structural factors seem to play a lesser role and multipliers do not exhibit a clear trend. We conclude that fiscal policy recommendations should take into account the position of the economy in the cycle in assessing their effectiveness and that the impact of government spending shocks is limited in the UK in non-recessionary periods. 4

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Section: Which Factors Drive the Variation Of Uk Government Spending supporting

confidence: 90%

Section: Gdp Deflatormentioning

confidence: 99%

Time-Varying Fiscal Spending Multipliers in the UK

2017

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“…This fact may seem puzzling when viewed through the lenses of a model in which the ZLB constraint is binding and dramatically changes the propagation of the main driver(s) of the business cycle. But if this constraint is largely bypassed by the effective use of other policy tools, the main propagation mechanism seen in the data need not change as one moves between ZLB and non-ZLB samples; see Debortoli, Galí, and Gambetti (2019) for corroborating evidence. Yet another possibility is that the ZLB constraint matters for the amplitude of the business cycle but not for the propagation dynamics.…”

Section: Alternative Specificationsmentioning

confidence: 92%

Business Cycle Anatomy

Angeletos¹,

Collard²,

Dellas³

2018

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We propose a new strategy for dissecting the macroeconomic time series, provide a template for the business-cycle propagation mechanism that best describes the data, and use its properties to appraise models of both the parsimonious and the medium-scale variety. Our findings support the existence of a main business-cycle driver but rule out the following candidates for this role: technology or other shocks that map to TFP movements; news about future productivity; and inflationary demand shocks of the textbook type. Models aimed at accommodating demanddriven cycles without a strict reliance on nominal rigidity appear promising."One is led by the facts to conclude that, with respect to the qualitative behavior of comovements among series, business cycles are all alike. To theoretically inclined economists, this conclusion should be attractive and challenging, for it suggests the possibility of a unified explanation of business cycles." Lucas (1977) 1 IntroductionIn their quest to explain macroeconomic fluctuations, macroeconomists have often relied on models in which a single, recurrent shock acts as the main business-cycle driver. 1 This practice is grounded not only on the desire to offer a parsimonious, unifying explanation as suggested by Lucas, but also on the property that such a model may capture diverse business-cycle triggers if these share a common propagation mechanism: multiple shocks that produce similar responses for all variables of interest can be considered as essentially the same shock. 2 Is there evidence of such a common propagation mechanism in macroeconomic data? And if yes, how does it look like?We address these questions with the help of a new empirical strategy. The strategy involves taking multiple cuts of the data. Each cut corresponds to a SVAR-based shock that accounts for the maximal volatility of a particular variable over a particular frequency band. Whether these empirical objects have a true structural counterpart in the theory or not, their properties form a rich set of cross-variable, static and dynamic restrictions, which can inform macroeconomic theory. We call this set the "anatomy."A core subset of the anatomy is the collection of the five shocks obtained by targeting the main macroeconomic quantities, namely unemployment, output, hours worked, consumption and investment, over the business-cycle frequencies. These shocks turn out to be interchangeable in the sense of giving rise to nearly the same impulse response functions (IRFs) for all the variables, as well as being highly correlated with one another.The interchangeability of these empirical shocks supports parsimonious theories featuring a main, unifying, propagation mechanism. Their shared IRFs provide an empirical template of it.In combination with other elements of our anatomy, this template rules out the following candidates for the main driver of the business cycle: technology or other shocks that map to TFP movements; news about future productivity; and inflationary demand shocks of the textbook type.Prominent ...

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“…Moreover, Debortoli et al . () find for the US that non‐conventional monetary policy sufficed to offset the worst impact of the ELB.…”

Section: The Elb and Monetary Policy In Switzerlandmentioning

confidence: 97%

“…As one possibility for their finding, and in line with our results, they mention that the basic New Keynesian model does not take into account non‐conventional policy measures that ameliorate the ELB constraint. Debortoli, Galí and Gambetti () find that, for the US, the impulse responses of a time‐varying parameter VAR do not change at the ELB. They also suggest that this is because conventional monetary policy can be substituted with non‐conventional measures.…”

Section: Introductionmentioning

confidence: 99%

Measuring Exchange Rate, Price, and Output Dynamics at the Effective Lower Bound

Bäurle

Kaufmann

2018

Oxf Bull Econ Stat

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New Keynesian models with sticky prices make stark predictions about how the economy responds to shocks under different monetary policy regimes when short‐term interest rates are constrained by an effective lower bound. We use the Swiss case as a laboratory to find evidence in favour of these predictions. We propose a Bayesian VAR to estimate impulse responses to risk shocks for short periods with a binding effective lower bound and with a publicly announced minimum exchange rate. In line with predictions from theory, we find that with a binding effective lower bound, the responses of the exchange rate, prices, and output become more persistent. However, the minimum exchange rate attenuates this adverse impact.

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On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint

Cited by 65 publications

References 26 publications

Time-Varying Fiscal Spending Multipliers in the UK

Time-Varying Fiscal Spending Multipliers in the UK

Business Cycle Anatomy

Measuring Exchange Rate, Price, and Output Dynamics at the Effective Lower Bound

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