The Government Spending Multiplier at the Zero Lower Bound: Evidence from the United States

Mario Di Serio (), Matteo Fragetta () and Emanuel Gasteiger

No 150, CELPE Discussion Papers from CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy

Abstract: We estimate state-dependent government spending multipliers for the United States. We use an Interacted Vector Autoregression (IVAR) model to capture the time-varying monetary policy characteristics including the recent zero interest rate lower bound (ZLB) state. We identify government spending shocks by sign restrictions and use a government spending growth forecast series to account for the effects of anticipated fiscal policy. In our baseline specification we find that government spending multipliers range from 3.4 to 3.7 at the ZLB. Away from the ZLB, multipliers range from 1.5 to 2.7. Next, we address the limited information problem typically inherent in VARs by the help of a Factor-Augmented IVAR (FAIVAR). We find that multipliers are lower in this case, ranging from 2.0 to 2.1 at the ZLB and between 1.5 and 1.8 away from it. Thus, in both specifications we find that multipliers are higher, when the interest rate is lower. Our results are consistent with recent theories that predict larger multipliers at the ZLB.

Keywords: Interacted VAR; Fiscal Policy; Government Spending; Zero Interest Rate Lower Bound (search for similar items in EconPapers)
JEL-codes: C32 E21 E32 E52 E62 H50 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2017-12-06
New Economics Papers: this item is included in nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The Government Spending Multiplier at the Zero Lower Bound: Evidence from the United States (2020)
Working Paper: The government spending multiplier at the zero lower bound: Evidence from the United States (2020)
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