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American Economic Review Vol. 103 No. 3 2013

Are Government Spending Multipliers Greater during Periods of Slack? Evidence from Twentieth-Century Historical Data

Michael T. Owyang1; Valerie A. Ramey2; Sarah Zubairy3

1 Research Division, Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, MO 63166-0442. · 2 Department of Economics, University of California, San Diego, 9500 Gilman Drive, La Jolla, CA 92093-0508. · 3 Bank of Canada, 234 Wellington St., Ottawa, ON K1A OG9.

Abstract

A key question that has arisen during recent debates is whether government spending multipliers are larger during times when resources are idle. This paper seeks to shed light on this question by analyzing new quarterly historical data covering multiple large wars and depressions in the United States and Canada. Using Jorda's (2005) method for estimating impulse responses, we find no evidence that multipliers are greater during periods of high unemployment in the United States. In every case, they are below unity. We do find evidence of higher multipliers during periods of slack in Canada, with some multipliers above unity.

DOI
10.1257/aer.103.3.129
Volume
103
Issue
3
Pages
129-134
Language
en
Sources
crossref bibtex:phds-export.bib openalex

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