Combining time-variation and mixed-frequencies: an analysis of government spending multipliers in Italy

Antonello D’Agostino and Jacopo Cimadomo
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Antonello D’Agostino: ESM
Authors registered in the RePEc Author Service: Antonello D'Agostino

Working Papers from European Stability Mechanism

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 1988 Q4-2013 Q3 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 (search for similar items in EconPapers)
JEL-codes: C32 E62 H30 H50 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2015-12-01
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Combining Time Variation and Mixed Frequencies: an Analysis of Government Spending Multipliers in Italy (2016)
Working Paper: Combining time-variation and mixed-frequencies: an analysis of government spending multipliers in Italy (2015)
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