Measuring How Fiscal Shocks Affect Durable Spending in Recessions and Expansions

David Berger and Joseph Vavra

American Economic Review, 2014, vol. 104, issue 5, 112-15

Abstract: We estimate how durable expenditures respond to government spending shocks at different points in the business cycle using a nonlinear VAR approach that allows for the durable multiplier to vary smoothly with the state of the economy. We find strong evidence that the aggregate durable spending response to fiscal shocks is substantially larger during expansions than during recessions, in contrast to what has been has been observed for the aggregate multiplier. We argue that these results are consistent with the theoretical predictions of the fixed cost model of durable demand in Berger and Vavra (2012).

JEL-codes: E21 E22 E32 E62 G01 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.5.112
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Citations: View citations in EconPapers (36)

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