Estimating Fiscal Multipliers: News from a Non‐Linear World

31 Pages Posted: 27 May 2015

See all articles by Giovanni Caggiano

Giovanni Caggiano

Department of Economics, Monash University; University of Padua

Efrem Castelnuovo

University of Melbourne - Department of Economics

Valentina Colombo

University of Padua - Department of Economics and Management

Gabriela Nodari

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

Date Written: May 2015

Abstract

We estimate non‐linear VARs to assess to what extent fiscal spending multipliers are countercyclical in the US. 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 generalised impulse responses suggest that fiscal spending multipliers in recessions are greater than one, but not statistically larger than those in expansions. However, non‐linearities arise when focusing on ‘extreme’ events, that is, deep recessions versus strong expansionary periods.

Suggested Citation

Caggiano, Giovanni and Castelnuovo, Efrem and Colombo, Valentina and Nodari, Gabriela, Estimating Fiscal Multipliers: News from a Non‐Linear World (May 2015). The Economic Journal, Vol. 125, Issue 584, pp. 746-776, 2015. Available at SSRN: https://ssrn.com/abstract=2610932 or http://dx.doi.org/10.1111/ecoj.12263

Giovanni Caggiano (Contact Author)

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

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

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

Valentina Colombo

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

Via del Santo, 33
Padova, 35123
Italy

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

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