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SUMMARY:What determines government spending multipliers? - Prof Giancarlo 
 Corsetti (Faculty of Economics)
DTSTART:20101102T170000Z
DTEND:20101102T180000Z
UID:TALK28015@talks.cam.ac.uk
CONTACT:Rachel Marston
DESCRIPTION:Theory predicts that the effect of fiscal expansion varies wit
 h the economic environment\, notably the monetary and exchange rate regime
 \, the state of public finances\, and the health of the financial system. 
 Using a panel of OECD countries\, we evaluate the issue empirically\, focu
 sing on the macroeconomic effects of government consumption. Fiscal shocks
  are identified as residuals from an estimated government spending rule. T
 hese shocks are then interacted with conditioning variables in order to ex
 plain macroeconomic outcomes across a range of economic environments. With
 out such interactions\, the unconditional responses to a spending shock ar
 e in line with earlier results\, featuring a positive\, if relatively smal
 l output multiplier\, no significant movement in consumption\, and a fall 
 in investment and the trade balance. Yet these average results mask import
 ant differences across environments. In particular\, the responses of the 
 real exchange rate and net exports vary systematically across exchange rat
 e regimes\, with real appreciation and external deficits emerging mainly u
 nder a currency peg. Output and consumption multipliers\, in turn\, become
  quite sizeable during times of financial crisis.
LOCATION:Winstanley Lecture Hall\, Trinity College
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