Government Spending Multipliers in Good Times and in Bad: Evidence from U.S. Historical Data / Valerie A. Ramey, Sarah Zubairy.

Format:

Book

Author/Creator:

Ramey, Valerie A.

Contributor:

National Bureau of Economic Research.

Zubairy, Sarah.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20719.

NBER working paper series no. w20719

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Government Spending Multipliers in Good Times and in Bad

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

This paper investigates whether U.S. government spending multipliers differ according to two potentially important features of the economy: (1) the amount of slack and (2) whether interest rates are near the zero lower bound. We shed light on these questions by analyzing new quarterly historical U.S. data covering multiple large wars and deep recessions. We estimate a state-dependent model in which impulse responses and multipliers depend on the average dynamics of the economy in each state. We find no evidence that multipliers differ by the amount of slack in the economy. These results are robust to many alternative specifications. The results are less clear for the zero lower bound. For the entire sample, there is no evidence of elevated multipliers near the zero lower bound. When World War II is excluded, some point estimates suggest higher multipliers during the zero lower bound state, but they are not statistically different from the normal state. Our results imply that, contrary to recent conjecture, government spending multipliers were not necessarily higher than average during the Great Recession.

Notes:

Print version record

November 2014.