Fiscal Multipliers in Recession and Expansion

Alan Auerbach and Yuriy Gorodnichenko

No 17447, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper, we estimate government purchase multipliers for a large number of OECD countries, allowing these multipliers to vary smoothly according to the state of the economy and using real-time forecast data to purge policy innovations of their predictable components. We adapt our previous methodology (Auerbach and Gorodnichenko, 2011) to use direct projections rather than the SVAR approach to estimate multipliers, to economize on degrees of freedom and to relax the assumptions on impulse response functions imposed by the SVAR method. Our findings confirm those of our earlier paper. In particular, GDP multipliers of government purchases are larger in recession, and controlling for real-time predictions of government purchases tends to increase the estimated multipliers of government purchases in recession. We also consider the responses of other key macroeconomic variables and find that these responses generally vary over the cycle as well, in a pattern consistent with the varying impact on GDP.

JEL-codes: E32 E62 (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-cba and nep-mac
Note: EFG PE
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Citations: View citations in EconPapers (216)

Published as Fiscal Multipliers in Recession and Expansion , Alan J. Auerbach, Yuriy Gorodnichenko. in Fiscal Policy after the Financial Crisis , Alesina and Giavazzi. 2013

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Chapter: Fiscal Multipliers in Recession and Expansion (2012)
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