Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154289
Authors: 
Cimadomo, Jacopo
D'Agostino, Antonello
Year of Publication: 
2015
Series/Report no.: 
ECB Working Paper 1856
Abstract: 
In this paper, we propose a time-varying parameter VAR model with stochastic volatility which allows for estimation on data sampled at different frequencies. Our contribution is twofold. First, we extend the methodology developed by Cogley and Sargent (2005), and Primiceri (2005), to a mixed-frequency setting. In particular, our approach allows for the inclusion of two different categories of variables (high-frequency and low-frequency) into the same time varying model. Second, we use this model to study the macroeconomic effects of government spending shocks in Italy over the 1988Q4-2013Q3 period. Italy - as well as most other euro area economies - is characterised by short quarterly time series for fiscal variables, whereas annual data are generally available for a longer sample before 1999. Our results show that the proposed time-varying mixed-frequency model improves on the performance of a simple linear interpolation model in generating the true path of the missing observations. Second, our empirical analysis suggests that government spending shocks tend to have positive effects on output in Italy. The fiscal multiplier, which is maximized at the one year horizon, follows a U-shape over the sample considered: it peaks at around 1.5 at the beginning of the sample, it then stabilizes between 0.8 and 0.9 from the mid-1990s to the late 2000s, before rising again to above unity during of the recent crisis.
Subjects: 
government spending multiplier
mixed-frequency data
time variation
JEL: 
C32
E62
H30
H50
ISBN: 
978-92-899-1669-1
Document Type: 
Working Paper

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