Clearing Up the Fiscal Multiplier Morass
- (pp. 2409-54)
Abstract
We quantify government spending multipliers in US data using Bayesian prior and posterior analysis of a monetary model with fiscal details and two distinct monetary-fiscal policy regimes. The combination of model specification, observable data, and relatively diffuse priors for some parameters lands posterior estimates in regions of the parameter space that yield fresh perspectives on the transmission mechanisms that underlie government spending multipliers. Short-run output multipliers are comparable across regimes—posterior means around 1.3 on impact—but much larger after 10 years under passive money/active fiscal than under active money/passive fiscal—90 percent credible sets of [1.5, 1.9] versus [0.1, 0.4] in present value, when estimated from 1955 to 2016.Citation
Leeper, Eric M., Nora Traum, and Todd B. Walker. 2017. "Clearing Up the Fiscal Multiplier Morass." American Economic Review, 107 (8): 2409-54. DOI: 10.1257/aer.20111196Additional Materials
JEL Classification
- E52 Monetary Policy
- E62 Fiscal Policy
- E63 Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- H50 National Government Expenditures and Related Policies: General