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What Determines Government Spending Multipliers?

Author

Listed:
  • Gernot Müller
  • Mr. Andre Meier
  • Giancarlo Corsetti
Abstract
This paper studies how the effects of government spending vary with the economic environment. Using a panel of OECD countries, we identify fiscal shocks as residuals from an estimated spending rule and trace their macroeconomic impact under different conditions regarding the exchange rate regime, public indebtedness, and health of the financial system. The unconditional responses to a positive spending shock broadly confirm earlier findings. However, conditional responses differ systematically across exchange rate regimes, as real appreciation and external deficits occur mainly under currency pegs. We also find output and consumption multipliers to be unusually high during times of financial crisis.

Suggested Citation

  • Gernot Müller & Mr. Andre Meier & Giancarlo Corsetti, 2012. "What Determines Government Spending Multipliers?," IMF Working Papers 2012/150, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2012/150
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    References listed on IDEAS

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    More about this item

    Keywords

    WP; government spending; exchange rate regime; monetary policy; stimulus package; Multiplier; fiscal policy; financial crisis; public finances; government spending shock; government spending multiplier; transmission mechanism; interest rate; fiscal policy transmission; standard error; financial crisis episode; response to a spending shock; exchange rate response; trade deficit; identifying government spending; Exchange rate arrangements; Real exchange rates; Global;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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