The Analytics of SVARs: A Unified Framework to Measure Fiscal Multipliers

68 Pages Posted: 8 May 2012

See all articles by Dario Caldara

Dario Caldara

Board of Governors of the Federal Reserve System

Christophe Kamps

European Central Bank (ECB)

Date Written: February 21, 2012

Abstract

Does fiscal policy stimulate output? SVARs have been used to address this question but no stylized facts have emerged. We derive analytical relationships between the output elasticities of fiscal variables and fiscal multipliers. We show that standard identification schemes imply different priors on elasticities, generating a large dispersion in multiplier estimates. We then use extra-model information to narrow the set of empirically plausible elasticities, allowing for sharper inference on multipliers. Our results for the U.S. for the period 1947-2006 suggest that the probability of the tax multiplier being larger than the spending multiplier is below 0.5 at all horizons.

Keywords: Fiscal policy, identification, vector autoregressions

JEL Classification: E62, C52

Suggested Citation

Caldara, Dario and Kamps, Christophe, The Analytics of SVARs: A Unified Framework to Measure Fiscal Multipliers (February 21, 2012). FEDS Working Paper No. 2012-20, Available at SSRN: https://ssrn.com/abstract=2054795 or http://dx.doi.org/10.2139/ssrn.2054795

Dario Caldara (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Christophe Kamps

European Central Bank (ECB) ( email )

Sonnemannstrasse 20
D-60314 Frankfurt am Main
Germany

HOME PAGE: http://https://www.ecb.europa.eu/pub/research/authors/profiles/christophe-kamps.en.html

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