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Fiscal Foresight and the Effects of Goverment Spending

Mario Forni () and Luca Gambetti ()

No 7840, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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: fiscal policy; fundamentalness; government spending shock; non-fundamentalness; sign restrictions; structural factor model (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
Date: 2010-05
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Working Paper: Fiscal Foresight and the Effects of Government Spending (2010) Downloads
Working Paper: Fiscal Foresight and the Effects of Government Spending (2010) Downloads
Working Paper: Fiscal Foresight and the Effects of Government Spending (2010) Downloads
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