Understanding the Size of the Government Spending Multiplier: It's in the Sign

Régis Barnichon, Davide Debortoli and Christian Matthes

No 2021-01, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: This paper argues that an important, yet overlooked, determinant of the government spending multiplier is the direction of the fiscal intervention. Regardless of whether we identify government spending shocks from (i) a narrative approach, or (ii) a timing restriction, we find that the contractionary multiplier- the multiplier associated with a negative shock to government spending- is above 1 and largest in times of economic slack. In contrast, the expansionary multiplier- the multiplier associated with a positive shock- is substantially below 1 regardless of the state of the cycle. These results help understand seemingly conflicting results in the literature. A simple theoretical model with incomplete financial markets and downward nominal wage rigidities can rationalize our findings.

JEL-codes: C32 E62 (search for similar items in EconPapers)
Pages: 48
Date: 2020-09-03
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.frbsf.org/economic-research/files/wp2021-01.pdf Full text – article PDF (application/pdf)

Related works:
Journal Article: Understanding the Size of the Government Spending Multiplier: It’s in the Sign (2022)
Working Paper: Understanding the Size of the Government Spending Multiplier: It's in the Sign (2020)
Working Paper: Understanding the size of the government spending multiplier: It’s in the sign (2020)
Working Paper: Understanding the Size of the Government Spending Multiplier: It's in the Sign (2017)
Working Paper: Understanding the Size of the Government Spending Multiplier: It's in the Sign (2016)
Working Paper: Understanding the size of the government spending multiplier: It's in the sign (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:89478

Ordering information: This working paper can be ordered from

DOI: 10.24148/wp2021-01

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of San Francisco Contact information at EDIRC.
Bibliographic data for series maintained by Federal Reserve Bank of San Francisco Research Library ().