TY - JOUR

T1 - State-dependent effects of fiscal policy

AU - Fazzari, Steven

AU - Morley, James

AU - Irina, Panovska

PY - 2015

Y1 - 2015

N2 - We investigate the effects of government spending on US output with a threshold structural vector autoregressive model. We consider Bayesian model comparison and generalized impulse response analysis to test for nonlinearities in the responses of output to government spending. Our empirical findings support state-dependent effects of fiscal policy, with the government spending multiplier larger and more persistent whenever there is considerable economic slack. Based on capacity utilization as the preferred threshold variable, the estimated multiplier is large (1.6) for a low-utilization regime that accounts for more than half of the sample observations from 1967 to 2012 according to the estimated threshold level.

AB - We investigate the effects of government spending on US output with a threshold structural vector autoregressive model. We consider Bayesian model comparison and generalized impulse response analysis to test for nonlinearities in the responses of output to government spending. Our empirical findings support state-dependent effects of fiscal policy, with the government spending multiplier larger and more persistent whenever there is considerable economic slack. Based on capacity utilization as the preferred threshold variable, the estimated multiplier is large (1.6) for a low-utilization regime that accounts for more than half of the sample observations from 1967 to 2012 according to the estimated threshold level.

M3 - Journal article

VL - 19

SP - 285

EP - 315

JO - Studies in Nonlinear Dynamics and Econometrics

JF - Studies in Nonlinear Dynamics and Econometrics

SN - 1558-3708

IS - 3

ER -