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State-Dependent Effects of Fiscal PolicySteven M. FazzariWashington University in St. Louis James MorleyUniversity of New South Wales Irina PanovskaWashington University in Saint Louis April 2013 UNSW Australian School of Business Research Paper No. 2012-27A Abstract: We investigate the effects of government spending on U.S. economic activity using a threshold version of a structural vector autoregressive model. Our empirical findings support state-dependent effects of fiscal policy. In particular, the effects of a government spending shock on output are significantly larger and more persistent when the economy has a high degree of underutilized resources than when the economy is close to capacity. This evidence is consistent with an underlying structure of the economy in which insufficient aggregate demand often constrains the level of economic activity.
Number of Pages in PDF File: 40 Keywords: Government Spending, Threshold Model, Vector Autoregression, Nonlinear Dynamics JEL Classification: C32, E32, E62 working papers seriesDate posted: April 30, 2012 ; Last revised: May 13, 2013Suggested CitationContact Information
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