The government spending multiplier at the zero lower bound: Evidence from the United States

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

No 04/2020, ECON WPS - Working Papers in Economic Theory and Policy from TU Wien, Institute of Statistics and Mathematical Methods in Economics, Economics Research Unit

Abstract: We estimate state-dependent government spending multipliers for the United States. We use a Factor-Augmented Interacted Vector Autoregression (FAIVAR) model. This allows us to capture the time-varying monetary policy characteristics including the recent zero interest rate lower bound (ZLB) state, to account for the state of the business cycle, and to address the limited information problem typically inherent in VARs. 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 in a recession range from 3:56 to 3:79 at the ZLB. Away from the ZLB, multipliers in recessions range from 2:31 to 3:05. Several robustness analyses confirm that multipliers are higher, when the interest rate is lower and that multipliers in recessions exceed multipliers in expansions. Our results are consistent with 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)
Date: 2020
New Economics Papers: this item is included in nep-gen, nep-mac and nep-pbe
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Citations: View citations in EconPapers (6)

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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 (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuweco:042020

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