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GOVERNMENT SPENDING MULTIPLIERS IN GOOD TIMES AND BAD TIMES: THE CASE OF EMERGING MARKETS

Published online by Cambridge University Press:  21 July 2020

Fábio Augusto Reis Gomes ,
Sergio Naruhiko Sakurai  and
Gian Paulo Soave
Fábio Augusto Reis Gomes
Affiliation:
University of São Paulo – FEARP/USP
Sergio Naruhiko Sakurai
Affiliation:
University of São Paulo – FEARP/USP
Gian Paulo Soave*
Affiliation:
Federal University of Bahia – UFBA
*
Address correspondence to: Gian Paulo Soave, Department of Economics, Federal University of Bahia - UFBA, Praça da Piedade, no. 06, Salvador, BA40060-300, Brazil. email: gianps@ufba.br.
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Abstract

We investigate the presence of nonlinear effects of government spending shocks during good and bad times in a panel of 17 emerging markets through the lens of a Bayesian panel threshold VAR model. We find that the responses of gross domestic product, consumption, investment, trade balance, real exchange rate, and real interest rates vary depending on the state of the economy. Particularly, in slump periods, both consumption and investment may respond negatively to a government purchase stimulus, unlike in normal times. Our estimated government spending multipliers are less than one in the two regimes and can be zero in bad times.

Keywords

Fiscal PolicyEmerging MarketsBayesian Threshold Hierarchical Panel VARState-Dependent Multipliers
Type
Articles
Information
Macroeconomic Dynamics , Volume 26 , Issue 3 , April 2022 , pp. 726 - 768
Copyright
© Cambridge University Press 2020

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Footnotes

The authors would like to thank the associate editor and anonymous referee for helpful suggestions and constructive comments. Fábio Augusto Reis Gomes acknowledges financial support from the CNPq— Brazil.

References

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