Estimation of the Government Expenditures Multiplier in the Republic of Armenia

Samwel Lazaryan and Mariia Elkina ()

Finansovyj žhurnal — Financial Journal, 2018, issue 4, 21-31

Abstract: The purpose of this article is to estimate government expenditure multiplier in the Republic of Armenia via a SVAR model. The model is evaluated using the data over the period from 2004 to 2017 and accounts for a structural break, which occurred in the year 2009. In addition, it controls for the dynamics of copper prices and output of the Russian Federation. The results indicate that the response of output to the government expenditure shock is quite strong right after the discretionary change of fiscal policy. The multiplier reaches its peak on impact with the estimated value about 3. However, there is a substantial uncertainty regarding the exact value of the multiplier and the 95 % lower bound estimate is only 0.8. Moreover, the value of the government expenditure multiplier decreases over time rather quickly. In the medium term the impact of the government expenditure shock on output is negligible. Overall, the authors conclude that government expenditure policy can be used successfully to stabilize the dynamics of output in the event of substantial recession or boom. Estimates obtained in this study do not contradict the results of previous researches dedicated to the evaluation of fiscal multipliers in the Republic of Armenia.

Keywords: government expenditure multiplier; fiscal multiplier; government expenditure; fiscal policy; SVAR model (search for similar items in EconPapers)
JEL-codes: E62 E63 H50 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:fru:finjrn:180402:p:21-31

DOI: 10.31107/2075-1990-2018-4-21-31

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