Fiscal Foresight and the Effects of Government Spending

Mario Forni and Luca Gambetti

Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi"

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: structural factor model; sign restrictions; fiscal policy; government spending shock; fundamentalness; non-fundamentalness (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
Pages: pages 34
Date: 2010-06
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Citations: View citations in EconPapers (63)

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Related works:
Working Paper: Fiscal Foresight and the Effects of Government Spending (2015)
Working Paper: Fiscal Foresight and the Effects of Government Spending (2010)
Working Paper: Fiscal Foresight and the Effects of Goverment Spending (2010)
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