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State-Dependent Effects of Fiscal Policy

Steven Fazzari (), James Morley () and Irina Panovska ()
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Irina Panovska: Rauch Business Center, Lehigh University

No 2012-27C, Discussion Papers from School of Economics, The University of New South Wales

Abstract: We investigate the eects of government spending on U.S. output with a threshold structural vector autoregressive model. We consider Bayesian model comparison and generalized impulse response analysis to test for nonlinearities in the responses of output to government spending. Our empirical ndings support state-dependent eects of scal policy, with the government spending multiplier larger and more persistent whenever there is considerable economic slack. Based on capacity utilization as the preferred threshold variable, the estimated multiplier is large (1.6) for a low-utilization regime that accounts for more than half of the sample observations from 1967-2012 according to the estimated threshold level.

Keywords: Government Spending; Threshold Model; Vector Autoregression; Nonlinear Dynamics; Impulse-Response Comparison; Bayesian (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-pbe
Date: 2014-08
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