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The Government Spending Multiplier at the Zero Lower Bound: Evidence from the United States |
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| Authors: | Mario Di Serio Matteo Fragetta Emanuel Gasteiger |
| Institution: | 1. Department of Economics and Statistics, Universitá degli Studi di Salerno, Via Ponte Don Melillo, 84084 Fisciano (SA), Italy;2. Department of Economics and Statistics, Universitá degli Studi di Salerno, Via Ponte Don Melillo, 84084 Fisciano (SA), Italy
Instituto Universitário de Lisboa (ISCTE-IUL), Business Research Unit (BRU-IUL), Av.a das Forças Armadas, 1649-026 Lisboa, Portugal Centro di Economia del Lavoro e di Politica Economica, CELPE, Università degli Studi di Salerno, Italy;3. Instituto Universitário de Lisboa (ISCTE-IUL), Business Research Unit (BRU-IUL), Av.a das Forças Armadas, 1649-026 Lisboa, Portugal |
| Abstract: | We estimate state-dependent government spending multipliers for the United States. We use a factor-augmented interacted vector autoregression (FAIVAR) model. This allows us to capture the time-varying monetary policy characteristics including the recent zero interest rate lower bound (ZLB) state, to account for the state of the business cycle and to address the limited information problem typically inherent in VARs. We identify government spending shocks by sign restrictions and use a government spending growth forecast series to account for the effects of anticipated fiscal policy. In our baseline specification, we find that government spending multipliers in a recession range from 3.56 to 3.79 at the ZLB. Away from the ZLB, multipliers in recessions range from 2.31 to 3.05. Several robustness analyses confirm that multipliers are higher, when the interest rate is lower and that multipliers in recessions exceed multipliers in expansions. Our results are consistent with theories that predict larger multipliers at the ZLB. |
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