Government Spending in Uncertain and Slack Times: Historical Evidence for Larger Fiscal Multipliers

Pascal Goemans

VfS Annual Conference 2020 (Virtual Conference): Gender Economics from Verein für Socialpolitik / German Economic Association

Abstract: We investigate whether US government spending multipliers are higher during periods of heightened uncertainty or economic slack as opposed to normal times. Using quarterly historical data and local projections, we estimate a cumulative one-year multiplier of 2 during uncertain periods. In contrast, the multiplier is about 1 in times of high unemployment and about 0:5 - 0:7 during normal times. While we find positive employment effects in economic slack as in uncertain times, two transmission channels can explain the higher multipliers in the latter: greater price exibility leading to short run in ation (lowering the real interest rate) and diminishing risk premiums.

Keywords: Fiscal policy; government spending; fiscal multiplier; uncertainty; economic slack; local projections; historical data (search for similar items in EconPapers)
JEL-codes: E62 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc20:224642

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