Estimating Fiscal Multipliers: News from a Nonlinear World

71 Pages Posted: 20 Dec 2014

See all articles by Giovanni Caggiano

Giovanni Caggiano

Department of Economics, Monash University; University of Padua

Efrem Castelnuovo

University of Melbourne - Department of Economics

Gabriela Nodari

University of Verona - Department of Economics; Reserve Bank of New Zealand

Valentina Colombo

University of Padua - Department of Economics and Management

Date Written: December 1, 2014

Abstract

We estimate nonlinear VARs to assess to what extent fiscal spending multipliers are countercyclical in the United States. We deal with the issue of non-fundamentalness due to fiscal foresight by appealing to sums of revisions of expectations of fiscal expenditures. This measure of anticipated fiscal shocks is shown to carry valuable information about future dynamics of public spending. Results based on generalized impulse responses suggest that fiscal spending multipliers in recessions are greater than one, but not statistically larger than those in expansions. However, nonlinearities arise when focusing on “extreme” events, i.e. deep recessions vs. strong expansionary periods.

Keywords: Fiscal news, fiscal foresight, fiscal spending multiplier, Smooth Transition Vector-AutoRegressions, extreme events

JEL Classification: C32, E32, E52

Suggested Citation

Caggiano, Giovanni and Castelnuovo, Efrem and Nodari, Gabriela and Colombo, Valentina, Estimating Fiscal Multipliers: News from a Nonlinear World (December 1, 2014). Melbourne Institute Working Paper No. 26/14. Available at SSRN: https://ssrn.com/abstract=2539950 or http://dx.doi.org/10.2139/ssrn.2539950

Giovanni Caggiano

Department of Economics, Monash University ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia

HOME PAGE: http://https://sites.google.com/site/giovannicaggiano72/CV/home

University of Padua ( email )

Via 8 Febbraio, 2
Padova, Vicenza 35122
Italy

Efrem Castelnuovo (Contact Author)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

HOME PAGE: http://https://sites.google.com/site/efremcastelnuovo/home

Gabriela Nodari

University of Verona - Department of Economics ( email )

Via dell'Artigliere, 8
37129 Verona
Italy

HOME PAGE: http://sites.google.com/site/gabrielanodari/

Reserve Bank of New Zealand ( email )

2 The Terrace
PO Box 2498
Wellington, 6140
New Zealand

Valentina Colombo

University of Padua - Department of Economics and Management ( email )

Via del Santo, 33
Padova, 35123
Italy

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