Working Paper: NBER ID: w16311
Authors: Alan J. Auerbach; Yuriy Gorodnichenko
Abstract: A key issue in current research and policy is the size of fiscal multipliers when the economy is in recession. We provide three insights. First, using regime-switching models, we find large differences in the size of spending multipliers in recessions and expansions with fiscal policy being considerably more effective in recessions than in expansions. Second, we estimate multipliers for more disaggregate spending variables which behave differently relative to aggregate fiscal policy shocks, with military spending having the largest multiplier. Third, we show that controlling for predictable components of fiscal shocks tends to increase the size of the multipliers in recessions.
Keywords: No keywords provided
JEL Codes: E32; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| state of the economy (E66) | effectiveness of government spending (E62) |
| fiscal multipliers (E62) | output (C67) |
| controlling for predictable components of fiscal shocks (E62) | size of multipliers in recessions (E51) |
| military spending (H56) | multiplier effect (E16) |
| state of the economy (E66) | government spending multiplier (E62) |