Identifying Government Spending Shocks and Multipliers in Korea

Kwangyong Park and Eun Kyung Lee ()
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Eun Kyung Lee: Economic Research Institute, Bank of Korea

No 2019-22, Working Papers from Economic Research Institute, Bank of Korea

Abstract: Accurately estimating the government spending multiplier is important so that fiscal policies can be used appropriately when recessions hit the economy. To fill the gap between the frontier research of calculating the government spending multiplier and current Korean research, and to estimate a more accurate multiplier in Korea, we construct a government spending news series in Korea based on Fisher and Peters (2010) by exploiting a market-weighted sum of excess stock returns of military contractors in Korea. We then use this military spending news series and estimate a structural VAR model to evaluate the effects of government spending. As a result, GDP and government spending show statistically significant responses to military spending news shocks. The accumulated government spending multiplier peaks after four quarters, and the five-year cumulative multiplier is calculated as 1.27. For a robustness check, different types of VAR models are tested and results are qualitatively similar.

Keywords: Fiscal policy; Multiplier (search for similar items in EconPapers)
JEL-codes: C32 E62 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2019-09-16
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2019-22.pdf Working Paper, 2019 (application/pdf)

Related works:
Journal Article: Identifying government spending shocks and multipliers in Korea (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bok:wpaper:1922

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