IMF Working Papers

What Determines Government Spending Multipliers?

By Gernot Müller, Andre Meier, Giancarlo Corsetti

June 1, 2012

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Gernot Müller, Andre Meier, and Giancarlo Corsetti. What Determines Government Spending Multipliers?, (USA: International Monetary Fund, 2012) accessed December 22, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Exchange rate arrangements, Expenditure, Financial crises, Fiscal policy, Foreign exchange, Real exchange rates

Keywords: Exchange rate arrangements, Exchange rate regime, Exchange rate response, Financial crisis, Financial crisis episode, Fiscal policy, Fiscal policy transmission, Global, Government spending, Government spending multiplier, Government spending shock, Identifying government spending, Interest rate, Monetary policy, Multiplier, Public finances, Real exchange rates, Response to a spending shock, Standard error, Stimulus package, Trade deficit, Transmission mechanism, WP

Publication Details

  • Pages:

    46

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2012/150

  • Stock No:

    WPIEA2012150

  • ISBN:

    9781475504217

  • ISSN:

    1018-5941