A Pitfall with Estimated DSGE-Based Government Spending Multipliers

Résumé

This paper examines issues related to the estimation of the government spending multiplier (GSM) in a DSGE context. We stress a source of bias in the GSM arising from the combination of endogenous government expenditures and Edgeworth complementarity between private consumption and government expenditures. Due to cross-equation restrictions, omitting the endogenous component of government policy at the estimation stage would lead an econometrician to underestimate the degree of Edgeworth complementarity and, consequently, the long-run GSM. An estimated version of our model with US postwar data shows that this bias matters quantitatively. The results are robust to a number of perturbations.

Mots-clés

Codes JEL

Remplace

Patrick Fève, Julien Matheron et Jean-Guillaume Sahuc, « A Pitfall with DSGE-Based, Estimated, Government Spending Multipliers », TSE Working Paper, n° 12-289, avril 2012.

Référence

Patrick Fève, Julien Matheron et Jean-Guillaume Sahuc, « A Pitfall with Estimated DSGE-Based Government Spending Multipliers », American Economic Journal: Macroeconomics, vol. 5, n° 4, octobre 2013, p. 141–178.