What Determines Government Spending Multipliers?

Gernot Müller, Andre Meier and Giancarlo Corsetti

No 2012/150, IMF Working Papers from International Monetary Fund

Abstract: This paper studies how the effects of government spending vary with the economic environment. Using a panel of OECD countries, we identify fiscal shocks as residuals from an estimated spending rule and trace their macroeconomic impact under different conditions regarding the exchange rate regime, public indebtedness, and health of the financial system. The unconditional responses to a positive spending shock broadly confirm earlier findings. However, conditional responses differ systematically across exchange rate regimes, as real appreciation and external deficits occur mainly under currency pegs. We also find output and consumption multipliers to be unusually high during times of financial crisis.

Keywords: WP; government spending; exchange rate regime; monetary policy; stimulus package; Multiplier; fiscal policy; financial crisis; public finances; government spending shock; government spending multiplier; transmission mechanism; interest rate; fiscal policy transmission; standard error; financial crisis episode; response to a spending shock; exchange rate response; trade deficit; identifying government spending; Exchange rate arrangements; Real exchange rates; Global (search for similar items in EconPapers)
Pages: 46
Date: 2012-06-01
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Citations: View citations in EconPapers (327)

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Related works:
Journal Article: What determines government spending multipliers? (2012)
Journal Article: What determines government spending multipliers? (2012)
Working Paper: What Determines Government Spending Multipliers? (2012)
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