The Impact of r-g on the Euro-Area Government Spending Multiplier
IMF Working Papers, February 12, 2021
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- The Impact of r-g on the Euro-Area Government Spending Multiplier
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Bibliographic details
- Authors: Mario di Serio, Matteo Fragetta, Giovanni Melina
- Published: February 12, 2021
- Series: IMF Working Papers
Summary findings
- The size of the government spending multiplier for the Euro Area (EA) depends on the interest-growth differential (r-g); whether the fiscal shock occurs when r-g is positive or negative matters for the multiplier.
- Median cumulated multipliers over the medium run (5 years) range between 1.22 and 1.77 when r-g is negative.
- Median cumulated multipliers over the medium run (5 years) range between 0.51 and 1.26 when r-g is positive.
- The difference between multipliers in the negative and positive r-g regimes differs systematically from zero with very high probability.
- The multiplier is inversely correlated with r-g.
- The results are not driven by:
- the state of the business cycle,
- the monetary policy stance,
- the level of government debt.
Methodology and technical approach
- Calculations are based on estimates from a factor-augmented interacted panel vector-autoregressive model.
- The econometric approach addresses several technical problems highlighted in the empirical macroeconomic literature, including:
- issues of fiscal foresight,
- limited information.
Key statistics and publication metadata
- Medium-run horizon: 5 years.
- Pages: 30
- Volume: 2021
- Issue: 039
- Series: Working Paper No. 2021/039
- Stock No: WPIEA2021039
- ISBN: 9781513569512
- ISSN: 1018-5941
Subjects and keywords
- Subject: Business cycles, Expenditure, Fiscal multipliers, Fiscal stance, Public debt
- Keywords: cumulated multiplier, EA country, Euro Area, Factor models, Fiscal multiplier, government debt, government spending multiplier, Panel VAR, potential GDP, r-g., WP
Mario di Serio, Matteo Fragetta, and Giovanni Melina. "The Impact of r-g on the Euro-Area Government Spending Multiplier", IMF Working Papers 2021, 039 (2021), February 12, 2021.
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