Fiscal multiplier/Tutorials
Measuring the Multiplier
Some researchers have used 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 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[2]
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Christine Romer has argued that that it is "incredibly hard" to estimate the value of a multiplier because fiscal actions are often taken in response to other things happening in the economy, and separating the impact of those other factors from the impact of fiscal change very difficult. Failure to do so can result in omitted-variable bias resulting in an underestimate of the multiplier - an error that Ms Romer believes to be common.
- ↑ [http://faculty.washington.edu/ezivot/econ584/notes/svar%20survey.pdf Jan Gottschalk: An Introduction into the SVAR Methodology: Identification, Interpretation and Limitations of SVAR models, KielWorking Paper No. 1072, August 2001]
- ↑ 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