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On the Size of the Government Spending Multiplier in the Euro Area

Fève, Patrick and Sahuc, Jean-Guillaume (2015) On the Size of the Government Spending Multiplier in the Euro Area. Oxford Economic Papers, 67 (3). pp. 531-552.

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This article addresses the existence of a wide range of estimated government spending multipliers in a dynamic stochastic general equilibrium model of the euro area. Our estimation results and counterfactual exercises provide evidence that omitting the interactions of key ingredients at the estimation stage (such as Edgeworth complementarity/subtitutability between private consumption and government expenditures, endogenous government spending policy and general time nonseparable preferences) paves the way for potentially large biases. We argue that uncertainty on the quantitative assessments of fiscal programmes could partly originate from these biases.

Item Type: Article
Language: English
Date: July 2015
Refereed: Yes
Uncontrolled Keywords: Government spending multiplier, DSGE models, Estimation bias, Euro area
JEL Classification: C32 - Time-Series Models
E32 - Business Fluctuations; Cycles
E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 21 Sep 2015 13:08
Last Modified: 15 Jul 2019 12:28
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