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Studies in Nonlinear Dynamics & Econometrics

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Volume 19, Issue 3 (Jun 2015)

Issues

State-dependent effects of fiscal policy

Steven M. Fazzari / James Morley
  • School of Economics, University of New South Wales, Business School, Sydney, NSW 2052, Australia
  • Other articles by this author:
  • De Gruyter OnlineGoogle Scholar
/ Irina Panovska
  • Corresponding author
  • Department of Economics, Lehigh University, 621 Taylor Street, Rauch Business Center, Bethlehem, PA 18015, USA
  • Email
  • Other articles by this author:
  • De Gruyter OnlineGoogle Scholar
Published Online: 2014-11-05 | DOI: https://doi.org/10.1515/snde-2014-0022

Abstract

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.

This article offers supplementary material which is provided at the end of the article.

Keywords: Bayesian; government spending; impulse-response comparison; nonlinear dynamics; threshold model; vector autoregression

JEL Codes: C32; E32; E62

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About the article

Corresponding author: Irina Panovska, Department of Economics, Lehigh University, 621 Taylor Street, Rauch Business Center, Bethlehem, PA 18015, USA, e-mail:


Published Online: 2014-11-05

Published in Print: 2015-06-01


Citation Information: Studies in Nonlinear Dynamics & Econometrics, ISSN (Online) 1558-3708, ISSN (Print) 1081-1826, DOI: https://doi.org/10.1515/snde-2014-0022.

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