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Characterizing G-multipliers in Canada

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Abstract

We estimate the effects of government spending (G) on GDP in Canada using the sign restricted VAR approach with quarterly data that spans from 1961 to 2019. The variables that enter our vector autoregressive model are carefully chosen to reflect the distinct characteristics of the Canadian economy, in particular, its linkages with US business cycles. We find large median multipliers that are above 1 on impact and in the long-run. They are not specific to the state of the economy. Moreover, neither net exports nor real exchange rates nor terms-of-trade respond significantly to G shocks. We also find large and long-lasting effects of shocks specific to government spending in investment and in consumption on output.

Suggested Citation

  • Fabrice Dabiré & Hashmat Khan & Patrick Richard & Jean-François Rouillard, 2021. "Characterizing G-multipliers in Canada," Carleton Economic Papers 21-14, Carleton University, Department of Economics, revised 14 Mar 2023.
    • Handle: RePEc:car:carecp:21-14
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    More about this item

    Keywords

    government spending multipliers; sign restricted VARs; Canadian economy;
    All these keywords.

    JEL classification:

    • 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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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