Combining Time-Variation and Mixed-Frequencies: An Analysis of Government Spending Multipliers in Italy

41 Pages Posted: 21 Mar 2018

See all articles by Antonello D'Agostino

Antonello D'Agostino

European Stability Mechanism; Central Bank and Financial Services Authority of Ireland - Economic Analysis and Research Department

Jacopo Cimadomo

European Central Bank; Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2015

Abstract

In this paper, we propose a time-varying parameter vector autoregression (VAR) model with stochastic volatility which allows for estimation on data sampled at different frequencies. Our contribution is two-fold. First, we extend the methodology developed by Cogley and Sargent (2005), and Primiceri (2005), to a mixed-frequency setting. In particular, our approach allows for the inclusion of two different categories of variables (high-frequency and low-frequency) into the same time-varying model. Second, we use this model to study the macroeconomic effects of government spending shocks in Italy over the 1988Q4-2013Q3 period. Italy - as well as most other euro area economies - is characterised by short quarterly time series for fiscal variables, whereas annual data are generally available for a longer sample before 1999. Our results show that the proposed time-varying mixed-frequency model improves on the performance of a simple linear interpolation model in generating the true path of the missing observations. Second, our empirical analysis suggests that government spending shocks tend to have positive effects on output in Italy. The fiscal multiplier, which is maximized at the one year horizon, follows a U-shape over the sample considered: it peaks at around 1.5 at the beginning of the sample, it then stabilizes between 0.8 and 0.9 from the mid-1990s to the late 2000s, before rising again to above unity during the recent crisis.

Keywords: Time variation, mixed-frequency data, government spending multiplier

JEL Classification: C32, E62, H30, H50

Suggested Citation

D'Agostino, Antonello and Cimadomo, Jacopo, Combining Time-Variation and Mixed-Frequencies: An Analysis of Government Spending Multipliers in Italy (December 1, 2015). European Stability Mechanism Working Paper No. 7, ISBN: 978-92-95085-09-1. Available at SSRN: https://ssrn.com/abstract=3144751 or http://dx.doi.org/10.2139/ssrn.3144751

Antonello D'Agostino (Contact Author)

European Stability Mechanism ( email )

6a Circuit de la Foire Internationale
L-1347
Luxembourg

Central Bank and Financial Services Authority of Ireland - Economic Analysis and Research Department ( email )

Dame Street
P.O. Box 559
Dublin 2
Ireland

Jacopo Cimadomo

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

9 rue Georges Pitard
Paris Cedex 15, F-75015
France

Register to save articles to
your library

Register

Paper statistics

Downloads
4
Abstract Views
95
PlumX Metrics