Fiscal Foresight and the Effects of Government Spending

Mario Forni and Luca Gambetti

No 460, Working Papers from Barcelona School of Economics

Abstract: We study the effects of government spending by using a structural, large dimensional, dynamic factor model. We find that the government spending shock is non-fundamental for the variables commonly used in the structural VAR literature, so that its impulse response functions cannot be consistently estimated by means of a VAR. Government spending raises both consumption and investment, with no evidence of crowding out. The impact multiplier is 1.7 and the long run multiplier is 0.6.

Keywords: sign restrictions; Structural factormodel; fiscalpolicy; government spending shock; fundamentalness; non-fundamentalness (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
Date: 2015-09
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Citations: View citations in EconPapers (76)

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Related works:
Working Paper: Fiscal Foresight and the Effects of Government Spending (2010)
Working Paper: Fiscal Foresight and the Effects of Goverment Spending (2010)
Working Paper: Fiscal Foresight and the Effects of Government Spending (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:460

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