American Economic Review: Vol. 104 No. 5 (May 2014)

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Measuring How Fiscal Shocks Affect Durable Spending in Recessions and Expansions

Article Citation

Berger, David, and Joseph Vavra. 2014. "Measuring How Fiscal Shocks Affect Durable Spending in Recessions and Expansions." American Economic Review, 104(5): 112-15.

DOI: 10.1257/aer.104.5.112

Abstract

We estimate how durable expenditures respond to government spending shocks at different points in the business cycle using a nonlinear VAR approach that allows for the durable multiplier to vary smoothly with the state of the economy. We find strong evidence that the aggregate durable spending response to fiscal shocks is substantially larger during expansions than during recessions, in contrast to what has been has been observed for the aggregate multiplier. We argue that these results are consistent with the theoretical predictions of the fixed cost model of durable demand in Berger and Vavra (2012).

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Authors

Berger, David (Northwestern U)
Vavra, Joseph (U Chicago)

JEL Classifications

E21: Macroeconomics: Consumption; Saving; Wealth
E22: Capital; Investment; Capacity
E32: Business Fluctuations; Cycles
E62: Fiscal Policy
G01: Financial Crises


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