Clearing Up the Fiscal Multiplier Morass

48 Pages Posted: 31 Jul 2015

See all articles by Eric M. Leeper

Eric M. Leeper

University of Virginia ; Indiana University at Bloomington - Department of Economics; National Bureau of Economic Research (NBER)

Nora Traum

North Carolina State University - Department of Economics

Todd B. Walker

Indiana University Bloomington - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 26, 2015

Abstract

We use Bayesian prior and posterior analysis of a monetary DSGE model, extended to include fiscal details and two distinct monetary-fiscal policy regimes, to quantify government spending multipliers in U.S. data. The combination of model specification, observable data, and relatively diffuse priors for some parameters lands posterior estimates in regions of the parameter space that yield fresh perspectives on the transmission mechanisms that underlie government spending multipliers. Posterior mean estimates of short-run output multipliers are comparable across regimes — about 1.4 on impact — but much larger after 10 years under passive money/active fiscal than under active money/passive fiscal — means of 1.9 versus 0.7 in present value.

Keywords: government spending; monetary-fiscal interactions; prior predictive analysis; Bayesian estimation

JEL Classification: C11, E62, E63

Suggested Citation

Leeper, Eric Michael and Traum, Nora and Walker, Todd B., Clearing Up the Fiscal Multiplier Morass (July 26, 2015). Available at SSRN: https://ssrn.com/abstract=2637446 or http://dx.doi.org/10.2139/ssrn.2637446

Eric Michael Leeper

University of Virginia ( email )

237 Monroe Hall
P.O. Box 400182
Charlottesville, VA 22904-418
United States

Indiana University at Bloomington - Department of Economics ( email )

304 Wylie Hall
Bloomington, IN 47405-6620
United States
812-855-9157 (Phone)
812-855-3736 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nora Traum

North Carolina State University - Department of Economics ( email )

Raleigh, NC 27695-8110
United States

HOME PAGE: http://www4.ncsu.edu/~njtraum/

Todd B. Walker (Contact Author)

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

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