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External Information and Fiscal Multipliers

Author

Listed:
  • Byung Ho Lee

    (Bank of Korea,)

  • Kwangyong Park

    (Bank of Korea,)

Abstract

To quantify the effects of government spending accurately, exogenous changes in government spending must be identified. In this study, we estimate a proxy VAR, which was developed by Stock and Watson (2012) and Mertens and Ravn (2013), using a revised supplementary budget from the government as the instrumental variable to derive fiscal multipliers in Korea. Through this methodology, we identify government spending shocks that have purged effects, such as automated stabilizers, without assuming the timing restriction that is widely employed to estimate multipliers. The empirical analysis shows that exogenous increases in government consumption and investment, as well as government transfers, all increase GDP and private demand statistically significantly. To be precise, the one-year cumulative multipliers are 1.02 and 0.54 for government consumption plus investment and transfers, respectively.

Suggested Citation

  • Byung Ho Lee & Kwangyong Park, 2023. "External Information and Fiscal Multipliers," Korean Economic Review, Korean Economic Association, vol. 39, pages 347-379.
    • Handle: RePEc:kea:keappr:ker-20230701-39-2-02
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Fiscal Multiplier; Fiscal Policy; External Instrument; Proxy VAR;
    All these keywords.

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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