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Withering Government Spending Multipliers
Author(s) -
CANZONERI MATTHEW,
COLLARD FABRICE,
DELLAS HARRIS,
DIBA BEHZAD
Publication year - 2012
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2012.00557.x
Subject(s) - government spending , economics , government (linguistics) , consumption (sociology) , globalization , macroeconomics , monetary economics , new keynesian economics , capital expenditure , capital (architecture) , consumer spending , monetary policy , keynesian economics , market economy , finance , welfare , history , social science , linguistics , philosophy , archaeology , recession , sociology
The empirical literature has documented a weakening of the consumption and output responses to an increase in government spending during the last 30 years. We show that a New Keynesian model in which real government spending is observed with measurement errors can account for the reduction in the size of government spending multipliers. The model implies—consistent with empirical evidence presented by Ilzetzki, Mendoza, and Vegh (2010)—that the evolution of monetary policy and greater globalization (increasing international trade and decreasing capital controls) are key factors in this development.