Abstract

http://ssrn.com/abstract=2045192
 
 

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State-Dependent Effects of Fiscal Policy


Steven M. Fazzari


Washington University in St. Louis

James Morley


University of New South Wales

Irina B. Panovska


Lehigh University

November 26, 2013

UNSW Australian School of Business Research Paper No. 2012-27B

Abstract:     
We investigate the effects of government spending on U.S. output with a threshold structural vector autoregressive model. We provide formal comparisons for nonlinearity in the responses of output to government spending and develop a method to compare the difference between impulse response functions across states of the economy. Our empirical findings support state-dependent effects of fiscal policy. The government spending multiplier is larger and more persistent when capacity utilization is low. The estimated multiplier is large (1.6) for more than half of the sample observations, even when the interest rate is not at the zero lower bound.

Number of Pages in PDF File: 44

Keywords: Government Spending, Threshold Model, Vector Autoregression, Nonlinear Dynamics, Impulse-Response Comparison, Bayesian

JEL Classification: C32, E32, E62

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Date posted: April 30, 2012 ; Last revised: December 9, 2013

Suggested Citation

Fazzari, Steven M. and Morley, James and Panovska, Irina B., State-Dependent Effects of Fiscal Policy (November 26, 2013). UNSW Australian School of Business Research Paper No. 2012-27B. Available at SSRN: http://ssrn.com/abstract=2045192 or http://dx.doi.org/10.2139/ssrn.2045192

Contact Information

Steven M Fazzari
Washington University in St. Louis ( email )
One Brookings Drive
St. Louis, MO 63130
United States
314-935-5693 (Phone)
314-935-4156 (Fax)
James Morley
University of New South Wales ( email )
High Street
Sydney, NSW 2052
Australia
+61 2 9385 3366 (Phone)
HOME PAGE: http://sites.google.com/site/jamescmorley/

Irina Panovska (Contact Author)
Lehigh University ( email )
621 Taylor Street
Bethlehem, PA 18015
United States
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