Government Purchases Reloaded: Informational Insufficiency and Heterogeneity in Fiscal VARs

Atif Ellahie and Giovanni Ricco ()

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Using a large Bayesian VAR, we approximate the flow of information received by economic agents to investigate the effects of changes to government purchases. We document robust evidence that informational insufficiency in conventional models explains inconsistent results across samples and commonly employed identifications in recursive Structural VARs and Expectational VARs. Furthermore, we report heterogeneous effects of components of government purchases. While aggregate government purchases do not appear to produce strong stimulative effects with output multiplier around 0.7, government investment components have multipliers well above unity. State and local consumption, which captures investment in education and health, elicits a strong response.

Keywords: fiscal shocks; government purchases; fiscal foresight; Large Bayesian; VARs (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (39)

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Related works:
Journal Article: Government purchases reloaded: Informational insufficiency and heterogeneity in fiscal VARs (2017)
Working Paper: Government Purchases Reloaded: Informational Insufficiency and Heterogeneity in Fiscal VARs (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1138

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