External Information and Fiscal Multipliers
Byung Ho Lee and
Kwangyong Park
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Byung Ho Lee: Bank of Korea,
Korean Economic Review, 2023, vol. 39, 347-379
Abstract:
To quantify the effects of government spending accurately, exogenous changes in government spending must be identified. In this study, we estimate a proxy VAR, which was 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. Through 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 exogenous increases in government consumption and investment, as well as 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, respectively.
Keywords: Fiscal Multiplier; Fiscal Policy; External Instrument; Proxy VAR (search for similar items in EconPapers)
JEL-codes: C54 D80 E62 H30 H50 (search for similar items in EconPapers)
Date: 2023
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