Asymmetric Effects of Government Spending : Does the Level of Real Interest Rates Matter?

Author/Editor:

Michael B. Devereux ; Woon Gyu Choi

Publication Date:

January 1, 2005

Electronic Access:

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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 empirically explores how fiscal policy (represented by increases in government spending) has asymmetric effects on economic activity at different levels of real interest rates. It suggests that the effect of fiscal policy depends on the level of real rates, since the Ricardian effect is smaller at lower financing costs of fiscal policy. Using threshold regression models on U.S. data, the paper provides new evidence that expansionary government spending is more conducive to short-run growth when real rates are low. It also finds asymmetric effects on interest rates and inflation, and threshold effects associated with substitution between financing methods.

Series:

Working Paper No. 05/7

Subject:

English

Publication Date:

January 1, 2005

ISBN/ISSN:

9781451860269/1018-5941

Stock No:

WPIEA2005007

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

36

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