External Information and Fiscal Multipliers

Korean Economic Review, forthcoming

34 Pages Posted: 16 Feb 2022 Last revised: 3 Mar 2023

See all articles by Kwangyong Park

Kwangyong Park

Economist, Economic Research Institute, The Bank of Korea

Lee ByungHo

Bank of Korea - Economic Research Institute

Date Written: February 15, 2022

Abstract

To accurately quantify the effects of government spending, it is necessary to identify exogenous changes in government spending. In this paper, we estimate a proxy VAR, developed by Stock and Watson (2012) and Mertens and Ravn (2013), using a revised supplementary budget from the government as the instrumental variable to derive fiscal multipliers in Korea. By using this methodology, we identify government spending shocks that have purged effects, such as automated stabilizers, without assuming the timing restriction that is widely employed to estimate multipliers. The empirical analysis shows that an exogenous increases in government consumption and investment, and government transfers, all increase GDP and private demand statistically significantly. To be precise, the one-year cumulative multipliers are 1.02 and 0.54 for government consumption plus investment and transfers.

Keywords: Fiscal Multiplier, Fiscal Policy, External Instrument, proxy VAR

JEL Classification: C54, D80, E62, H30, H50

Suggested Citation

Park, Kwangyong and ByungHo, Lee, External Information and Fiscal Multipliers (February 15, 2022). Korean Economic Review, forthcoming, Available at SSRN: https://ssrn.com/abstract=4035265 or http://dx.doi.org/10.2139/ssrn.4035265

Kwangyong Park (Contact Author)

Economist, Economic Research Institute, The Bank of Korea ( email )

110, 3-Ga, Namdaemunno, Jung-Gu
Seoul 100-794
Korea, Republic of (South Korea)

Lee ByungHo

Bank of Korea - Economic Research Institute ( email )

110, 3-Ga, Namdaemunno, Jung-Gu
Seoul 100-794
Korea, Republic of (South Korea)

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