Christian Glocker

Time-varying fiscal spending multipliers in the UK

We study government spending multipliers of the UK economy using a time-varying parameter factor augmented vector autoregressive model (TVP-FAVAR) over the period 1966:Q1-2015:Q4. We show that government spending multipliers vary over time and that most of the variation is cyclical: multipliers for GDP are typically above one in recessions and below one in expansions. Regarding the drivers of the cyclical variation, our results are consistent with theories emphasizing the role of financial frictions and economic slack. We find no evidence that multipliers are larger at the zero lower bound. Structural factors seem to play a lesser role and multipliers do not exhibit a clear trend. We conclude that fiscal policy recommendations should take into account the position of the economy in the cycle in assessing their effectiveness and that the impact of government spending shocks is limited in the UK in non-recessionary periods.

Government Expenditures and Business Cycles—Policy Reaction and Surprise Shocks

This article analyses the effects of government expenditures on German business cycle fluctuations by means of an estimated DSGE model based on low frequency oscillations. The results highlight that fiscal policy has a strong impact on the amplitude of fluctuations while hardly any on the duration of business cycles. To the extent that fiscal policy shocks are an important source for triggering economy-wide fluctuations, fiscal policy also strongly reacts to shocks originating elsewhere. Thus standard specifications of government expenditures in terms of simple AR(1) processes ignore the fact that there can indeed be a strong dependence of governmental variables on economic fluctuations. JEL Classification: C13, C32, E3, E62