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Time Varying Fiscal Multipliers in Germany

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  • Berg, Tim Oliver
Abstract
This paper provides novel evidence on the time varying impact of government spending shocks on output in Germany over the years 1970 to 2013. In a first step, I use an expectations-augmented vector autoregressive model with time varying parameters (TVP-VAR) to show that fiscal multipliers are not stable over time but exhibit a u-shaped pattern. While multipliers fluctuate around 2 at the beginning and end of the sample, they are much smaller in between. In a second step, I discuss which factors determine the magnitude of German multipliers and hence explain the observed variation. It turns out that fiscal policy is more effective when business uncertainty is high but less in periods of financial market stress, while the state of the business cycle is minor important. Moreover, I find that fiscal sustainability is a crucial determinant of the multipliers and that these are about 1 euro higher since the loss of monetary policy autonomy due to the adoption of the euro. And finally, I conclude that policy recommendations based on average multipliers are misleading.

Suggested Citation

  • Berg, Tim Oliver, 2014. "Time Varying Fiscal Multipliers in Germany," MPRA Paper 57223, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:57223
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    Cited by:

    1. Klaus Weyerstrass & Rijad Kovac, 2023. "Fiscal policies in the Federation of Bosnia and Herzegovina: are spending or revenue measures more effective?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(1), pages 173-206, February.
    2. Christian Grimme & Marc Stöckli, 2017. "Makroökonomische Unsicherheit in Deutschland," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(06), pages 41-50, March.
    3. Glocker, Christian & Sestieri, Giulia & Towbin, Pascal, 2019. "Time-varying government spending multipliers in the UK," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 180-197.
    4. repec:spo:wpmain:info:hdl:2441/6qk99khogd86non732alvigmuq is not listed on IDEAS
    5. Francesco Saraceno, 2018. "The end of the consensus ? The economic crisis and the crisis of macroeconomics," Post-Print hal-03443466, HAL.
    6. repec:ces:ifofor:v:19:y:2018:i:1:p:46-50 is not listed on IDEAS
    7. Markus Eller & Martin Feldkircher & Florian Huber, 2017. "How would a fiscal shock in Germany affect other European countries? Evidence from a Bayesian GVAR model with sign restrictions," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 54-77.
    8. Berg, Tim Oliver, 2019. "Business Uncertainty And The Effectiveness Of Fiscal Policy In Germany," Macroeconomic Dynamics, Cambridge University Press, vol. 23(4), pages 1442-1470, June.
    9. Christian Grimme, 2017. "Messung der Unternehmensunsicherheit in Deutschland – das ifo Streuungsmaß," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(15), pages 19-25, August.
    10. Jiménez, Alvaro & Rodríguez, Gabriel & Ataurima Arellano, Miguel, 2023. "Time-varying impact of fiscal shocks over GDP growth in Peru: An empirical application using hybrid TVP-VAR-SV models," Structural Change and Economic Dynamics, Elsevier, vol. 64(C), pages 314-332.
    11. E. O. Matveev & I. A. Sokolov, 2024. "Application of VAR Models to Assess the Impact of Budget Expenditures on GDP Dynamics," Studies on Russian Economic Development, Springer, vol. 35(5), pages 657-666, October.
    12. An, Sungbae & Kim, Hyosang & Kim, Seung-Hyun & Yang, Da Young & Lee, Jinhee & Cho, Ko Un & Kim, Wongi & Kim, Jinill, 2021. "포스트 코로나 시대 주요국의 통화·재정정책 방향과 시사점(hanges, Challenges and Implications of Fiscal and Monetary Policy Directions in the Post Pandemic Era)," Policy Analyses 21-15, Korea Institute for International Economic Policy.
    13. Christian Grimme & Magnus Reif & Timo Wollmershäuser, 2016. "Die Auswirkungen des britischen Votums für einen Brexit auf die deutsche Konjunktur 2016/17," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 69(13), pages 38-43, July.
    14. C. Glocker & G. Sestieri & P. Towbin, 2017. "Time-varying fiscal spending multipliers in the UK," Working papers 643, Banque de France.
    15. Halberstadt, Arne & Krippner, Leo, 2016. "The effect of conventional and unconventional euro area monetary policy on macroeconomic variables," Discussion Papers 49/2016, Deutsche Bundesbank.
    16. repec:hal:spmain:info:hdl:2441/6qk99khogd86non732alvigmuq is not listed on IDEAS
    17. Stefan Sauer & Klaus Wohlrabe, 2020. "ifo Handbuch der Konjunkturumfragen," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 88.
    18. Alexander Meléndez Holguín & Gabriel Rodríguez, 2023. "Evolution over time of the effects of fiscal shocks in the peruvian economy: empirical application using TVP-VAR-SV models," Documentos de Trabajo / Working Papers 2023-516, Departamento de Economía - Pontificia Universidad Católica del Perú.
    19. Francesco Saraceno, 2018. "The end of the consensus ? The economic crisis and the crisis of macroeconomics," SciencePo Working papers Main hal-03443466, HAL.

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    More about this item

    Keywords

    Fiscal Multipliers; State Dependence; Germany; Expectations-Augmented TVP-VAR;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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