Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/312133 
Year of Publication: 
2025
Series/Report no.: 
DIW Discussion Papers No. 2106
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
We construct a narrative instrument for government investment from official records in Germany. Using structural vector autoregressions, we document a significant crowding-in of private investment and an output multiplier of roughly 2. Then, we match a New Keynesian dynamic stochastic general equilibrium model to the empirical responses, and we decompose the multiplier into three channels. Public investment reduces private investment costs in the short run, it increases the production capacity in the medium run, and it generates demand effects along the production network. We find a similar multiplier in other euro area countries, using an indirect instrumental variable strategy.
Subjects: 
Fiscal policy
public investment
structural vector autoregression
instrumental variable
general equilibrium model
Germany
JEL: 
E62
E65
H54
Document Type: 
Working Paper

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