òòò½Íø Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
A Pitfall with Estimated DSGE-Based Government Spending Multipliers
òòò½Íø Journal: Macroeconomics
vol. 5,
no. 4, October 2013
(pp. 141–78)
Abstract
This paper examines issues related to the estimation of the government spending multiplier (GSM) in a DSGE context. We stress a source of bias in the GSM arising from the combination of endogenous government expenditures and Edgeworth complementarity between private consumption and government expenditures. Due to cross-equation restrictions, omitting the endogenous component of government policy at the estimation stage would lead an econometrician to underestimate the degree of Edgeworth complementarity and, consequently, the long-run GSM. An estimated version of our model with US postwar data shows that this bias matters quantitatively. The results are robust to a number of perturbations.Citation
Fève, Patrick, Julien Matheron, and Jean-Guillaume Sahuc. 2013. "A Pitfall with Estimated DSGE-Based Government Spending Multipliers." òòò½Íø Journal: Macroeconomics 5 (4): 141–78. DOI: 10.1257/mac.5.4.141Additional Materials
JEL Classification
- E13 General Aggregative Models: Neoclassical
- E23 Macroeconomics: Production
- E32 Business Fluctuations; Cycles
- E62 Fiscal Policy
- H50 National Government Expenditures and Related Policies: General