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Time Varying Fiscal Multipliers in Germany

Tim Berg ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper provides novel evidence on the time varying impact of government spending shocks on output in Germany over the years 1970 to 2013. In a first step, I use an expectations-augmented vector autoregressive model with time varying parameters (TVP-VAR) to show that fiscal multipliers are not stable over time but exhibit a u-shaped pattern. While multipliers fluctuate around 2 at the beginning and end of the sample, they are much smaller in between. In a second step, I discuss which factors determine the magnitude of German multipliers and hence explain the observed variation. It turns out that fiscal policy is more effective when business uncertainty is high but less in periods of financial market stress, while the state of the business cycle is minor important. Moreover, I find that fiscal sustainability is a crucial determinant of the multipliers and that these are about 1 euro higher since the loss of monetary policy autonomy due to the adoption of the euro. And finally, I conclude that policy recommendations based on average multipliers are misleading.

Keywords: Fiscal Multipliers; State Dependence; Germany; Expectations-Augmented TVP-VAR (search for similar items in EconPapers)
JEL-codes: C11 E32 E62 (search for similar items in EconPapers)
Date: 2014-07-10
New Economics Papers: this item is included in nep-mac
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Journal Article: Time Varying Fiscal Multipliers in Germany (2015) Downloads
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