Working Paper: NBER ID: w21433
Authors: Eric M. Leeper; Nora Traum; Todd B. Walker
Abstract: We use Bayesian prior and posterior analysis of a monetary DSGE model, extended to include fiscal details and two distinct monetary-fiscal policy regimes, to quantify government spending multipliers in U.S. data. The combination of model specification, observable data, and relatively diffuse priors for some parameters lands posterior estimates in regions of the parameter space that yield fresh perspectives on the transmission mechanisms that underlie government spending multipliers. Posterior mean estimates of short-run output multipliers are comparable across regimes—about 1.4 on impact—but much larger after 10 years under passive money/active fiscal than under active money/passive fiscal—means of 1.9 versus 0.7 in present value.
Keywords: Fiscal Multiplier; Bayesian Analysis; Monetary-Fiscal Policy
JEL Codes: C11; E62; E63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government spending under regime F (H59) | Output multiplier (E23) |
| Government spending under regime M (E62) | Output multiplier (E23) |
| Government spending under regime F (H59) | Consumption multiplier (E21) |
| Government spending under regime M (E62) | Consumption multiplier (E21) |
| Government spending under regime M (E62) | Investment multiplier (E22) |
| Government spending under regime F (H59) | Investment multiplier (E22) |
| Nominal rigidities (D59) | Government spending multipliers (E62) |
| Habit formation (D10) | Government spending multipliers (E62) |
| Complementarity between government and private consumption (D10) | Government spending multipliers (E62) |