Do Fiscal Multipliers Depend on Fiscal Positions?
This paper analyzes the relationship between fiscal multipliers and fiscal positions of governments using an Interactive Panel Vector Auto Regression model and a large data-set of advanced and developing economies. The methodology permits tracing t...
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| Format: | Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2016
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| Online Access: | http://documents.worldbank.org/curated/en/2016/06/26533514/fiscal-multipliers-depend-fiscal-positions http://hdl.handle.net/10986/24641 |
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okr-10986-246412021-04-23T14:04:23Z Do Fiscal Multipliers Depend on Fiscal Positions? Huidrom, Raju Kose, M. Ayhan Lim, Jamus J. Ohnsorge, Franziska L. FORECASTS GROWTH RATES MONETARY POLICY RISKS ECONOMIC GROWTH CHECKS FISCAL BALANCES MULTIPLIERS SHORT-TERM RATE LAGS MONETARY ECONOMICS INTEREST TRANSMISSION MECHANISMS EXPECTATIONS IMPORT ECONOMETRIC MODEL GOVERNMENT SPENDING INTEREST RATE SLACK REAL GDP OPTION EXCHANGE MACROECONOMIC POLICY LIQUIDITY DEVELOPING COUNTRIES RECESSION POLITICAL ECONOMY CAPITAL STRUCTURES YIELD SPREADS FISCAL POLICY ECONOMIC POLICY MACROECONOMIC CONDITIONS VARIABLES TAX BOND YIELDS WEALTH INTERNATIONAL BANK DEBT BURDEN BANK LENDING DEVELOPMENT MACROECONOMIC STABILITY EFFECTIVE EXCHANGE RATE ENDOGENOUS VARIABLE INDEBTEDNESS CURRENCY DEVELOPMENT ECONOMICS FOREIGN CURRENCY DEBT ADVANCED ECONOMIES STRUCTURAL SHOCKS LOW-INCOME COUNTRIES MONEY CURRENT ACCOUNT DESCRIPTIVE STATISTICS CAPITAL FORMATION GOVERNMENT INDEBTEDNESS EXCHANGE RATES CREDIT RISKS MONETARY FUND FLEXIBLE EXCHANGE RATE SOVEREIGN BOND MARKETS DEBT FLOATING EXCHANGE RATES PRIVATE INVESTMENT DEFICITS CONSUMPTION EXPENDITURE OPEN ECONOMY BUSINESS CYCLE LENDERS RECESSIONS BORROWING COSTS GROSS DOMESTIC PRODUCT DISTORTIONS BORROWING COST FINANCE FOREIGN CURRENCY MARKET ECONOMIES MACROECONOMIC STABILIZATION TAXES FIXED EXCHANGE RATE EXPENDITURE DEBT LEVELS INVESTORS CONSUMPTION GROSS FIXED CAPITAL FORMATION GOOD FISCAL SHOCKS SOVEREIGN RISK FINANCIAL CRISIS FUTURE INDICATOR VARIABLE VALUE TAX INCREASES CURRENT ACCOUNT BALANCE CREDIT MACROECONOMICS ERROR TERMS DEMAND CONSUMPTION PATHS GOVERNMENT EXPENDITURE AGGREGATE DEMAND YIELD SPREAD ECONOMY MARKET BENCHMARK ECONOMIC THEORY REAL GROSS DOMESTIC PRODUCT EXCHANGE RATE REGIME ENDOGENOUS VARIABLES PUBLIC DEBT SOLVENCY INVESTMENT RISES CREDIT RISK AVERAGE DEBT BUSINESS CYCLES GOVERNMENT DEBT TROUGH GDP INVESTOR THEORY FINANCIAL DEVELOPMENT INVESTMENT RISK OUTPUT RESPONSES BOND SHARE FISCAL BALANCE UNCERTAINTY PRIVATE CONSUMPTION EXTERNAL DEBT FINANCIAL STRUCTURE FIXED EXCHANGE RATE REGIMES LENDING CHECK NOMINAL INTEREST RATE LEVEL OF DEBT FISCAL POSITIONS EXCHANGE RATE INSTRUMENT ROBUSTNESS CHECKS REAL EFFECTIVE EXCHANGE RATE LABOR MARKETS OUTCOMES CONSUMPTION INCREASES EXCHANGE RATE REGIMES FISCAL POSITION ECONOMIES DEVELOPMENT POLICY FUTURE RESEARCH This paper analyzes the relationship between fiscal multipliers and fiscal positions of governments using an Interactive Panel Vector Auto Regression model and a large data-set of advanced and developing economies. The methodology permits tracing the endogenous relationship between fiscal multipliers and fiscal positions while maintaining enough degrees of freedom to draw sharp inferences. The paper reports three major results. First, the fiscal multipliers depend on fiscal positions: the multipliers tend to be larger when fiscal positions are strong (i.e. when government debt and deficits are low) than weak. For instance, the long-run multiplier can be as large as unity when the fiscal position is strong, while it can be negative when the fiscal position is weak. Second, these effects are separate and distinct from the impact of the business cycle on the fiscal multiplier. Third, the state-dependent effects of the fiscal position on multipliers is attributable to two factors: an interest rate channel through which higher borrowing costs, due to investors' increased perception of credit risks when stimulus is implemented from a weak initial fiscal position, crowd out private investment; and a Ricardian channel through which households reduce consumption in anticipation of future fiscal adjustments. 2016-07-07T21:35:44Z 2016-07-07T21:35:44Z 2016-06 Working Paper http://documents.worldbank.org/curated/en/2016/06/26533514/fiscal-multipliers-depend-fiscal-positions http://hdl.handle.net/10986/24641 English en_US Policy Research Working Paper;No. 7724 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English en_US |
| topic |
FORECASTS GROWTH RATES MONETARY POLICY RISKS ECONOMIC GROWTH CHECKS FISCAL BALANCES MULTIPLIERS SHORT-TERM RATE LAGS MONETARY ECONOMICS INTEREST TRANSMISSION MECHANISMS EXPECTATIONS IMPORT ECONOMETRIC MODEL GOVERNMENT SPENDING INTEREST RATE SLACK REAL GDP OPTION EXCHANGE MACROECONOMIC POLICY LIQUIDITY DEVELOPING COUNTRIES RECESSION POLITICAL ECONOMY CAPITAL STRUCTURES YIELD SPREADS FISCAL POLICY ECONOMIC POLICY MACROECONOMIC CONDITIONS VARIABLES TAX BOND YIELDS WEALTH INTERNATIONAL BANK DEBT BURDEN BANK LENDING DEVELOPMENT MACROECONOMIC STABILITY EFFECTIVE EXCHANGE RATE ENDOGENOUS VARIABLE INDEBTEDNESS CURRENCY DEVELOPMENT ECONOMICS FOREIGN CURRENCY DEBT ADVANCED ECONOMIES STRUCTURAL SHOCKS LOW-INCOME COUNTRIES MONEY CURRENT ACCOUNT DESCRIPTIVE STATISTICS CAPITAL FORMATION GOVERNMENT INDEBTEDNESS EXCHANGE RATES CREDIT RISKS MONETARY FUND FLEXIBLE EXCHANGE RATE SOVEREIGN BOND MARKETS DEBT FLOATING EXCHANGE RATES PRIVATE INVESTMENT DEFICITS CONSUMPTION EXPENDITURE OPEN ECONOMY BUSINESS CYCLE LENDERS RECESSIONS BORROWING COSTS GROSS DOMESTIC PRODUCT DISTORTIONS BORROWING COST FINANCE FOREIGN CURRENCY MARKET ECONOMIES MACROECONOMIC STABILIZATION TAXES FIXED EXCHANGE RATE EXPENDITURE DEBT LEVELS INVESTORS CONSUMPTION GROSS FIXED CAPITAL FORMATION GOOD FISCAL SHOCKS SOVEREIGN RISK FINANCIAL CRISIS FUTURE INDICATOR VARIABLE VALUE TAX INCREASES CURRENT ACCOUNT BALANCE CREDIT MACROECONOMICS ERROR TERMS DEMAND CONSUMPTION PATHS GOVERNMENT EXPENDITURE AGGREGATE DEMAND YIELD SPREAD ECONOMY MARKET BENCHMARK ECONOMIC THEORY REAL GROSS DOMESTIC PRODUCT EXCHANGE RATE REGIME ENDOGENOUS VARIABLES PUBLIC DEBT SOLVENCY INVESTMENT RISES CREDIT RISK AVERAGE DEBT BUSINESS CYCLES GOVERNMENT DEBT TROUGH GDP INVESTOR THEORY FINANCIAL DEVELOPMENT INVESTMENT RISK OUTPUT RESPONSES BOND SHARE FISCAL BALANCE UNCERTAINTY PRIVATE CONSUMPTION EXTERNAL DEBT FINANCIAL STRUCTURE FIXED EXCHANGE RATE REGIMES LENDING CHECK NOMINAL INTEREST RATE LEVEL OF DEBT FISCAL POSITIONS EXCHANGE RATE INSTRUMENT ROBUSTNESS CHECKS REAL EFFECTIVE EXCHANGE RATE LABOR MARKETS OUTCOMES CONSUMPTION INCREASES EXCHANGE RATE REGIMES FISCAL POSITION ECONOMIES DEVELOPMENT POLICY FUTURE RESEARCH |
| spellingShingle |
FORECASTS GROWTH RATES MONETARY POLICY RISKS ECONOMIC GROWTH CHECKS FISCAL BALANCES MULTIPLIERS SHORT-TERM RATE LAGS MONETARY ECONOMICS INTEREST TRANSMISSION MECHANISMS EXPECTATIONS IMPORT ECONOMETRIC MODEL GOVERNMENT SPENDING INTEREST RATE SLACK REAL GDP OPTION EXCHANGE MACROECONOMIC POLICY LIQUIDITY DEVELOPING COUNTRIES RECESSION POLITICAL ECONOMY CAPITAL STRUCTURES YIELD SPREADS FISCAL POLICY ECONOMIC POLICY MACROECONOMIC CONDITIONS VARIABLES TAX BOND YIELDS WEALTH INTERNATIONAL BANK DEBT BURDEN BANK LENDING DEVELOPMENT MACROECONOMIC STABILITY EFFECTIVE EXCHANGE RATE ENDOGENOUS VARIABLE INDEBTEDNESS CURRENCY DEVELOPMENT ECONOMICS FOREIGN CURRENCY DEBT ADVANCED ECONOMIES STRUCTURAL SHOCKS LOW-INCOME COUNTRIES MONEY CURRENT ACCOUNT DESCRIPTIVE STATISTICS CAPITAL FORMATION GOVERNMENT INDEBTEDNESS EXCHANGE RATES CREDIT RISKS MONETARY FUND FLEXIBLE EXCHANGE RATE SOVEREIGN BOND MARKETS DEBT FLOATING EXCHANGE RATES PRIVATE INVESTMENT DEFICITS CONSUMPTION EXPENDITURE OPEN ECONOMY BUSINESS CYCLE LENDERS RECESSIONS BORROWING COSTS GROSS DOMESTIC PRODUCT DISTORTIONS BORROWING COST FINANCE FOREIGN CURRENCY MARKET ECONOMIES MACROECONOMIC STABILIZATION TAXES FIXED EXCHANGE RATE EXPENDITURE DEBT LEVELS INVESTORS CONSUMPTION GROSS FIXED CAPITAL FORMATION GOOD FISCAL SHOCKS SOVEREIGN RISK FINANCIAL CRISIS FUTURE INDICATOR VARIABLE VALUE TAX INCREASES CURRENT ACCOUNT BALANCE CREDIT MACROECONOMICS ERROR TERMS DEMAND CONSUMPTION PATHS GOVERNMENT EXPENDITURE AGGREGATE DEMAND YIELD SPREAD ECONOMY MARKET BENCHMARK ECONOMIC THEORY REAL GROSS DOMESTIC PRODUCT EXCHANGE RATE REGIME ENDOGENOUS VARIABLES PUBLIC DEBT SOLVENCY INVESTMENT RISES CREDIT RISK AVERAGE DEBT BUSINESS CYCLES GOVERNMENT DEBT TROUGH GDP INVESTOR THEORY FINANCIAL DEVELOPMENT INVESTMENT RISK OUTPUT RESPONSES BOND SHARE FISCAL BALANCE UNCERTAINTY PRIVATE CONSUMPTION EXTERNAL DEBT FINANCIAL STRUCTURE FIXED EXCHANGE RATE REGIMES LENDING CHECK NOMINAL INTEREST RATE LEVEL OF DEBT FISCAL POSITIONS EXCHANGE RATE INSTRUMENT ROBUSTNESS CHECKS REAL EFFECTIVE EXCHANGE RATE LABOR MARKETS OUTCOMES CONSUMPTION INCREASES EXCHANGE RATE REGIMES FISCAL POSITION ECONOMIES DEVELOPMENT POLICY FUTURE RESEARCH Huidrom, Raju Kose, M. Ayhan Lim, Jamus J. Ohnsorge, Franziska L. Do Fiscal Multipliers Depend on Fiscal Positions? |
| relation |
Policy Research Working Paper;No. 7724 |
| description |
This paper analyzes the relationship
between fiscal multipliers and fiscal positions of
governments using an Interactive Panel Vector Auto
Regression model and a large data-set of advanced and
developing economies. The methodology permits tracing the
endogenous relationship between fiscal multipliers and
fiscal positions while maintaining enough degrees of freedom
to draw sharp inferences. The paper reports three major
results. First, the fiscal multipliers depend on fiscal
positions: the multipliers tend to be larger when fiscal
positions are strong (i.e. when government debt and deficits
are low) than weak. For instance, the long-run multiplier
can be as large as unity when the fiscal position is strong,
while it can be negative when the fiscal position is weak.
Second, these effects are separate and distinct from the
impact of the business cycle on the fiscal multiplier.
Third, the state-dependent effects of the fiscal position on
multipliers is attributable to two factors: an interest rate
channel through which higher borrowing costs, due to
investors' increased perception of credit risks when
stimulus is implemented from a weak initial fiscal position,
crowd out private investment; and a Ricardian channel
through which households reduce consumption in anticipation
of future fiscal adjustments. |
| format |
Working Paper |
| author |
Huidrom, Raju Kose, M. Ayhan Lim, Jamus J. Ohnsorge, Franziska L. |
| author_facet |
Huidrom, Raju Kose, M. Ayhan Lim, Jamus J. Ohnsorge, Franziska L. |
| author_sort |
Huidrom, Raju |
| title |
Do Fiscal Multipliers Depend on Fiscal Positions? |
| title_short |
Do Fiscal Multipliers Depend on Fiscal Positions? |
| title_full |
Do Fiscal Multipliers Depend on Fiscal Positions? |
| title_fullStr |
Do Fiscal Multipliers Depend on Fiscal Positions? |
| title_full_unstemmed |
Do Fiscal Multipliers Depend on Fiscal Positions? |
| title_sort |
do fiscal multipliers depend on fiscal positions? |
| publisher |
World Bank, Washington, DC |
| publishDate |
2016 |
| url |
http://documents.worldbank.org/curated/en/2016/06/26533514/fiscal-multipliers-depend-fiscal-positions http://hdl.handle.net/10986/24641 |
| _version_ |
1764457285058297856 |