Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260808 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9678
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We estimate government spending multipliers in demand- and supply-driven recessions for the Euro Area. Multipliers in a moderately demand-driven recession are 2-3 times larger than in a moderately supply-driven recession, with the difference between multipliers being non-zero with very high probability. More generally, multipliers are inversely correlated with the deviation of inflation from its trend, implying that the more demand-driven a recession, the higher the multiplier. Median multipliers range from -0.5 in supply-driven recessions to about 2 in demand-driven recessions. The econometric approach leverages a factor-augmented interacted vector-autoregression model purified of expectations (FAIPVAR-X). The model captures the time-varying state of the business-cycle including strongly and moderately demand- and supply-driven recessions, by taking the whole distribution of inflation deviations from trend into account.
Subjects: 
fiscal multiplier
business cycle
interacted panel VAR
factor models
Euro Area
JEL: 
C32
C33
C38
E32
E62
Document Type: 
Working Paper
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