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Desperate times call for desperate measures: government spending multipliers in hard times

Sokbae (Simon) Lee (), Yuan Liao, Myung Hwan Seo and Youngki Shin ()

Department of Economics Working Papers from McMaster University

Abstract: We investigate state-dependent effects of fiscal multipliers and allow for endogenous sample splitting to determine whether the US economy is in a slack state. When the endogenized slack state is estimated as the period of the unemployment rate higher than about 12 percent, the estimated cumulative multipliers are significantly larger during slack periods than non-slack periods and are above unity. We also examine the possibility of time-varying regimes of slackness and find that our empirical results are robust under a more flexible framework. Our estimation results points out the importance of the heterogenous effects of fiscal policy.

Keywords: fiscal policy; threshold regression; recession (search for similar items in EconPapers)
JEL-codes: C32 E62 H20 H62 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2019-09
New Economics Papers: this item is included in nep-mac
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http://socialsciences.mcmaster.ca/econ/rsrch/papers/archive/2019-11.pdf (application/pdf)

Related works:
Journal Article: DESPERATE TIMES CALL FOR DESPERATE MEASURES: GOVERNMENT SPENDING MULTIPLIERS IN HARD TIMES (2020) Downloads
Working Paper: Desperate times call for desperate measures: government spending multipliers in hard times (2020) Downloads
Working Paper: Desperate times call for desperate measures: government spending multipliers in hard times (2019) Downloads
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