Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/182225
Authors: 
Klein, Mathias
Linnemann, Ludger
Year of Publication: 
2018
Series/Report no.: 
DIW Discussion Papers 1754
Abstract: 
We estimate the effect of government spending shocks on the US economy with a time-varying parameter vector autoregression. The recent Great Recession period appears to be characterized by uniquely large impulse responses of output to fiscal shocks. Moreover, the particularity of this period is underlined by highly unusual responses of several other variables. The pattern of fiscal shock responses neither completely fits the predictions of the New Keynesian model of an economy subject to the zero lower bound on nominal interest rates, nor does it suggest regular variation of fiscal policy effects depending on the state of the business cycle. Rather, the Great Recession period seems special in that government spending shocks had a strongly negative effect on the spread between corporate and government bond yields and a strongly positive effect on consumer confidence and private consumption spending.
Subjects: 
fiscal policy
government spending
vector autoregression
time-varying parameters
JEL: 
E32
E62
Document Type: 
Working Paper

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