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Government Spending Multipliers in Times of Tight and Loose Monetary Policy in New Zealand

Alfred Haug and India Power

The Economic Record, 2022, vol. 98, issue 322, 249-270

Abstract: We investigate the cumulative government spending multiplier in times of tight and loose monetary policy for New Zealand. Using local projections with instrumental variables, we find the spending multiplier peaks at 0.61 under loose monetary policy, while remaining statistically insignificant when monetary policy is tight. Splitting government spending into two components leads to different results. The government consumption multiplier does not depend on the stance of monetary policy and peaks at 0.55. However, the government investment multiplier peaks at 0.84 when monetary policy is loose, but is not statistically significant when it is tight.

Date: 2022
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Handle: RePEc:bla:ecorec:v:98:y:2022:i:322:p:249-270