Propagation Mechanisms for Government Spending Shocks: A Bayesian Comparison

Kormilitsina, Anna; Zubairy, Sarah

doi:10.1111/jmcb.12555

Cited by 20 publications

(15 citation statements)

References 68 publications

(185 reference statements)

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“…Similarly, Coenen et al (2012) suggested that we can observe a crowding-in effect on private consumption when the model is based on two assumptions: there is complementarity between private consumption and public spending, and government consumption is included in the utility function in an inseparable manner. This is consistent with models estimated by Kormilitsina and Zubairy (2016), who were not able to find a crowding-in effect of public spending on private consumption.…”

Section: Literature Reviewsupporting

confidence: 90%

Impact of Fiscal Policy on Consumption and Labor Supply under a Time-Varying Structural VAR Model

Shaheen

2019

Economies

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This paper investigates the impact of fiscal policy on private consumption and labor supply in the UK economy using time-varying parameter vector autoregression (TVP-VAR) with stochastic volatility for the period Q2 1987 to Q2 2017. It considers fiscal variables such as government expenditure and net tax revenue and evaluates their impact on private consumption and average hours worked per week. Three sample periods were selected and two approaches were used to identify impulse responses, first taking the average of stochastic volatility over the sample period, and then allowing for sign restrictions based on contemporaneous relationships among the selected variables. The study found a negative wealth effect of public spending on private consumption and a positive effect on hours worked, as people tend to work more hours to maintain the same standard of living. Similarly, a tax shock generates negative effects on consumption but the impact on worked hours remains unclear over a three-year time horizon. These findings are almost consistent across sample periods and alternative specifications of impulse responses. This is one of only a few studies to determine the linkages between fiscal policy and the labor market using a macroeconomic framework.

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Section: Literature Reviewsupporting

confidence: 90%

Impact of Fiscal Policy on Consumption and Labor Supply under a Time-Varying Structural VAR Model

Shaheen

2019

Economies

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“…Thus, while the distribution of news shocks does make the average Ramey multiplier   smaller (closer to its  + value), this effect is not enough to compensate the fact that  +    + and  −    −  As a result, we find      in Table 1 and 2 (as in Ramey and Zubairy, 2016). 35 The discussion of New-Keynesian models with government spending is not meant to be exhaustive, and other mechanisms can generate a multiplier above 1 (see e.g., Kormilitsina and Zubairy, 2016). The goal of the discussion is to highlight simple channels that can lead to an asymmetric multiplier.…”

Section: Theoretical Discussionmentioning

confidence: 87%

“…27 Such shocks include (but not exclusively) shocks to government spending and thus contain information on the size of the government spending multiplier.…”

Section: Jorda and Taylor (2016)mentioning

confidence: 99%

Understanding the Size of the Government Spending Multiplier: It's in the Sign

Barnichon¹,

Matthes²

2017

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“…The effect of an increase in government spending is a central issue in macroeconomics. In this regard, different macroeconomic models have achieved contrasting conclusions about the response of private consumption to government spending shocks (see, among others: Baxter and King 1993;Ambler and Paquet 1996;Linnemann and Schabert 2006;Forni et al 2009;Leeper et al 2010;Enders et al 2011;Coenen et al 2012;Corsetti et al 2012;Kormilitsina and Zubairy 2018;Beidas-Strom and Lorusso 2019).…”

Section: Introductionmentioning

confidence: 99%

Disentangling Civilian and Military Spending Shocks: A Bayesian DSGE Approach for the US Economy

Lorusso

Pieroni

2019

JRFM

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In this paper, we disentangle public spending components in order analyse their effects on the U.S. economy. Our Dynamic Stochastic General Equilibrium Model (DSGE) model includes both civilian and military expenditures. We take into account the changes in the effects of these public spending components before and after the structural break that occurred in the U.S. economy around 1980, namely financial liberalisation. Therefore, we estimate our model with Bayesian methods for two sample periods: 1954:3-1979:2 and 1983:1-2008:2. Our results suggest that total government spending has a positive effect on output, but it induces a fall in private consumption. Moreover, we find important differences between the effects of civilian and military spending. In the pre-1980 period, higher civilian spending induced a rise in private consumption, whereas military spending shocks systematically decreased it. Our findings indicate that civilian spending has a more positive impact on output than military expenditure. Our robustness analysis assesses the impact of public spending shocks under alternative monetary policy assumptions.

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Propagation Mechanisms for Government Spending Shocks: A Bayesian Comparison

Cited by 20 publications

References 68 publications

Impact of Fiscal Policy on Consumption and Labor Supply under a Time-Varying Structural VAR Model

Impact of Fiscal Policy on Consumption and Labor Supply under a Time-Varying Structural VAR Model

Understanding the Size of the Government Spending Multiplier: It's in the Sign

Disentangling Civilian and Military Spending Shocks: A Bayesian DSGE Approach for the US Economy

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