Asymmetric Effects of Government Spending: Does the Level of Real Interest Rates Matter?

Michael B. Devereux () and Woon Gyu Choi

No 05/7, IMF Working Papers from International Monetary Fund

Abstract: This paper empirically explores how fiscal policy (represented by increases in government spending) has asymmetric effects on economic activity at different levels of real interest rates. It suggests that the effect of fiscal policy depends on the level of real rates, since the Ricardian effect is smaller at lower financing costs of fiscal policy. Using threshold regression models on U.S. data, the paper provides new evidence that expansionary government spending is more conducive to short-run growth when real rates are low. It also finds asymmetric effects on interest rates and inflation, and threshold effects associated with substitution between financing methods.

Keywords: Fiscal policy; United States; Government expenditures; Real interest rates; Economic models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fin, nep-mac and nep-pbe
Date: 2005-01-31
View list of references View citations in EconPapers

Downloads: (external link)
http://www.imf.org/external/pubs/ft/wp/2005/wp0507.pdf (application/pdf)

Related works:
Working Paper: Asymmetric Effects of Government Spending: Does the Level of Real Interest Rates Matter? (2004)
Journal Article: Asymmetric Effects of Government Spending: Does the Level of Real Interest Rates Matter? (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:imf:imfwpa:05/7

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund
Address: International Monetary Fund, Washington, DC USA
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().