Government Spending Multipliers in Good Times and in Bad: Evidence from U.S. Historical Data

Valerie Ramey and Sarah Zubairy

No 20719, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates whether U.S. government spending multipliers differ according to two potentially important features of the economy: (1) the amount of slack and (2) whether interest rates are near the zero lower bound. We shed light on these questions by analyzing new quarterly historical U.S. data covering multiple large wars and deep recessions. We estimate a state-dependent model in which impulse responses and multipliers depend on the average dynamics of the economy in each state. We find no evidence that multipliers differ by the amount of slack in the economy. These results are robust to many alternative specifications. The results are less clear for the zero lower bound. For the entire sample, there is no evidence of elevated multipliers near the zero lower bound. When World War II is excluded, some point estimates suggest higher multipliers during the zero lower bound state, but they are not statistically different from the normal state. Our results imply that, contrary to recent conjecture, government spending multipliers were not necessarily higher than average during the Great Recession.

JEL-codes: E52 E62 N12 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-fdg, nep-his, nep-mac and nep-pbe
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (161)

Published as Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data Valerie A. Ramey and Sarah Zubairy Journal of Political Economy 2018 126:2, 850-901

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Journal Article: Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data (2018)
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