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Should we trust cross sectional multiplier estimates?

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  • Canova, Fabio

Abstract

I examine the properties of cross sectional estimates of multipliers, elasticities, or pass-throughs when the data is generated by a conventional multi-unit time series specification. A number of important biases plague estimates; the most relevant one occurs when the cross section is not dynamic homogenous. I suggest methods that can deal with this problem and show the magnitude of the biases cross sectional estimators display in an experimental setting. I contrast average time series and average cross sectional estimates of local fiscal multipliers for US states.

Suggested Citation

  • Canova, Fabio, 2020. "Should we trust cross sectional multiplier estimates?," CEPR Discussion Papers 15330, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15330
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    Cited by:

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    4. Ricardo Duque Gabriel & Mathias Klein & Ana Sofia Pessoa, 2023. "The Effects of Government Spending in the Eurozone," Journal of the European Economic Association, European Economic Association, vol. 21(4), pages 1397-1427.
    5. Ghomi, Morteza & Micó-Millán, Isabel & Pappa, Evi, 2024. "The sentimental propagation of lottery winnings: Evidence from the Spanish Christmas lottery," Journal of Monetary Economics, Elsevier, vol. 143(C).

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    More about this item

    Keywords

    Cross sectional methods; Dynamic heterogeneity; Partial pooling; Fiscal multipliers; Monetary pass-through;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

    NEP fields

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