Fiscal multiplier/Tutorials: Difference between revisions
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==Measuring the Multiplier== | ==Measuring the Multiplier== | ||
One group of researchers use a [[regression analysis]] technique known as SVAR<ref> Jan Gottschalk: ''An Introduction into the SVAR Methodology: Identification, Interpretation | |||
and Limitations of SVAR models, KielWorking Paper No. 1072, August 2001]</ref> to determine the typical reaction of output to previously recorded fiscal changes. The problem about this method is that fiscal changes have often been taken in response to other things happening in the economy. Separating the impact of those other factors from the impact of fiscal change very difficult, and failure to do so can result in [[omitted-variable bias]] resulting in an underestimate of the multiplier. According to [[Christine Romer]], that has been a common cause of error<ref>[http://elsa.berkeley.edu/~cromer/Written%20Version%20of%20Effects%20of%20Fiscal%20Policy.pdf Christina D. Romer: ''What do we know about the effects of fiscal policy?'', Lecture at Hamilton College, November 7, 2011]</ref> | and Limitations of SVAR models, KielWorking Paper No. 1072, August 2001 [http://faculty.washington.edu/ezivot/econ584/notes/svar%20survey.pdf]</ref> to determine the typical reaction of output to previously recorded fiscal changes. The problem about this method is that fiscal changes have often been taken in response to other things happening in the economy. Separating the impact of those other factors from the impact of fiscal change can be very difficult, and failure to do so successfully can result in [[omitted-variable bias]] resulting in an underestimate of the multiplier. According to [[Christine Romer]], that has been a common cause of error<ref>[http://elsa.berkeley.edu/~cromer/Written%20Version%20of%20Effects%20of%20Fiscal%20Policy.pdf Christina D. Romer: ''What do we know about the effects of fiscal policy?'', Lecture at Hamilton College, November 7, 2011]</ref>. Another approach involves the use of a previously calibrated [[general equilibrium]] (DSGE<ref>[http://www.econ.kuleuven.be/ew/academic/intecon/Degrauwe/PDG-papers/Recently_published_articles/PCH2010.pdf Paul De Grauwe ''The scientific foundation of dynamic stochastic general equilibrium (DSGE) models'', Public Choice, 13 July 2010]</ref>) model of the economy | ||
<ref>[http://www.econ.kuleuven.be/ew/academic/intecon/Degrauwe/PDG-papers/Recently_published_articles/PCH2010.pdf Paul De Grauwe ''The scientific foundation of dynamic stochastic general equilibrium (DSGE) models'', Public Choice, 13 July 2010]</ref> | |||
{{reflist}} | {{reflist}} | ||
Revision as of 08:47, 17 November 2012
Measuring the Multiplier
One group of researchers use a regression analysis technique known as SVAR[1] to determine the typical reaction of output to previously recorded fiscal changes. The problem about this method is that fiscal changes have often been taken in response to other things happening in the economy. Separating the impact of those other factors from the impact of fiscal change can be very difficult, and failure to do so successfully can result in omitted-variable bias resulting in an underestimate of the multiplier. According to Christine Romer, that has been a common cause of error[2]. Another approach involves the use of a previously calibrated general equilibrium (DSGE[3]) model of the economy
- ↑ Jan Gottschalk: An Introduction into the SVAR Methodology: Identification, Interpretation and Limitations of SVAR models, KielWorking Paper No. 1072, August 2001 [1]
- ↑ Christina D. Romer: What do we know about the effects of fiscal policy?, Lecture at Hamilton College, November 7, 2011
- ↑ Paul De Grauwe The scientific foundation of dynamic stochastic general equilibrium (DSGE) models, Public Choice, 13 July 2010