Macroeconomic Effects of Government Spending: The Great Recession Was (Really) Different

Mathias Klein and Ludger Linnemann

No 1754, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We estimate the effect of government spending shocks on the US economy with a time-varying parameter vector autoregression. The recent Great Recession period appears to be characterized by uniquely large impulse responses of output to fiscal shocks. Moreover, the particularity of this period is underlined by highly unusual responses of several other variables. The pattern of fiscal shock responses neither completely fits the predictions of the New Keynesian model of an economy subject to the zero lower bound on nominal interest rates, nor does it suggest regular variation of fiscal policy effects depending on the state of the business cycle. Rather, the Great Recession period seems special in that government spending shocks had a strongly negative effect on the spread between corporate and government bond yields and a strongly positive effect on consumer confidence and private consumption spending.

Keywords: Fiscal policy; government spending; vector autoregression; time-varying parameters (search for similar items in EconPapers)
JEL-codes: E32 E62 (search for similar items in EconPapers)
Pages: 27 , XI p.
Date: 2018
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_01.c.596445.de/dp1754.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1754

Access Statistics for this paper

More papers in Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().