Are Government Spending Multipliers Greater During Periods of Slack? Evidence from 20th Century Historical Data

FRB of St. Louis Working Paper No. 2013-004A

16 Pages Posted: 23 Jan 2013

See all articles by Michael Owyang

Michael Owyang

Federal Reserve Bank of St. Louis - Research Division

Valerie A. Ramey

University of California at San Diego; National Bureau of Economic Research (NBER)

Sarah Zubairy

Texas A&M University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 21, 2013

Abstract

A key question that has arisen during recent debates is whether government spending multipliers are larger during times when resources are idle. This paper seeks to shed light on this question by analyzing new quarterly historical data covering multiple large wars and depressions in the U.S. and Canada. Using an extension of Ramey’s (2011) military news series and Jordà’s (2005) method for estimating impulse responses, we find no evidence that multipliers are greater during periods of high unemployment in the U.S. In every case, the estimated multipliers are below unity. We do find some evidence of higher multipliers during periods of slack in Canada, with some multipliers above unity.

Keywords: fiscal policy, multipliers, business cycles

JEL Classification: E62, H50

Suggested Citation

Owyang, Michael T. and Ramey, Valerie A. and Zubairy, Sarah, Are Government Spending Multipliers Greater During Periods of Slack? Evidence from 20th Century Historical Data (January 21, 2013). FRB of St. Louis Working Paper No. 2013-004A, Available at SSRN: https://ssrn.com/abstract=2205417 or http://dx.doi.org/10.2139/ssrn.2205417

Michael T. Owyang (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

Valerie A. Ramey

University of California at San Diego ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-534-2388 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sarah Zubairy

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

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