LECTURE 6 The Effects of Fiscal Changes: Cross-Section Evidence. September 26, 2018

Similar documents
LECTURE 5 The Effects of Fiscal Changes: Cross-Section Evidence. September 21, 2016

LECTURE 4 The Effects of Fiscal Changes: Government Spending. September 21, 2011

UNIVERSITY OF CALIFORNIA Economics 134 DEPARTMENT OF ECONOMICS Spring 2018 Professor Christina Romer LECTURE 16

LECTURE 1 Measurement. January 21, 2015

LECTURE 5 The Effects of Fiscal Changes: Aggregate Evidence. September 19, 2018

Brief Summary of Some of the Cross-Section and Panel Estimates of Fiscal Multipliers

Economics 134 Spring 2018 Professor David Romer UNIVERSITY OF CALIFORNIA DEPARTMENT OF ECONOMICS LECTURE 14 THE NEW DEAL MARCH 12, 2018

Professor Christina Romer. LECTURE 21 FISCAL POLICY April 10, 2018

Professor Christina Romer. LECTURE 22 FISCAL POLICY April 14, 2016

LECTURE 9 The Effects of Credit Contraction: Credit Market Disruptions. October 19, 2016

UNIVERSITY OF CALIFORNIA Economics 134 DEPARTMENT OF ECONOMICS Spring 2018 Professor David Romer LECTURE 13 DOES FISCAL POLICY MATTER?

Professor Christina Romer. LECTURE 22 FISCAL POLICY April 14, 2016

Was the American Recovery and Reinvestment Act an Economic Stimulus?

Ten Years after the Financial Crisis: What Have We Learned from. the Renaissance in Fiscal Research?

Justin Wolfers University of Michigan and Brookings, CEPR, CESifo, IZA, NBER & PIIE

Research Division Federal Reserve Bank of St. Louis Working Paper Series

UNIVERSITY OF CALIFORNIA Economics 134 DEPARTMENT OF ECONOMICS Spring 2018 Professor Christina Romer LECTURE 24

LECTURE 3 The Effects of Monetary Changes: Vector Autoregressions. September 7, 2016

LECTURE 11 The Effects of Credit Contraction and Financial Crises: Credit Market Disruptions. November 28, 2018

UNIVERSITY OF CALIFORNIA Economics 134 DEPARTMENT OF ECONOMICS Spring 2018 Professor David Romer NOTES ON THE MIDTERM

Does State Fiscal Relief During Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act 1

Professor Christina Romer. LECTURE 20 PLANNED AGGREGATE EXPENDITURE AND OUTPUT April 5, 2018

LECTURE 23: FISCAL POLICY

INTERMEDIATE MACROECONOMICS (EC202)

Lecture 7. Fiscal Policy

LECTURE 9 The Effects of Credit Contraction and Financial Crises: Balance Sheet and Cash Flow Effects. October 24, 2018

The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States

Keynesian Views On The Fiscal Multiplier

FISCAL STIMULUS AND CONSUMER DEBT

LECTURE 11 Monetary Policy at the Zero Lower Bound: Quantitative Easing. November 2, 2016

LECTURE 8 Monetary Policy at the Zero Lower Bound: Quantitative Easing. October 10, 2018

NBER WORKING PAPER SERIES TRANSFER PAYMENTS AND THE MACROECONOMY: THE EFFECTS OF SOCIAL SECURITY BENEFIT CHANGES,

Fiscal Balancing Act

UNIVERSITY OF CALIFORNIA Economics 134 DEPARTMENT OF ECONOMICS Spring 2018 Professor David Romer LECTURE 15

Professor Christina Romer. LECTURE 21 PLANNED AGGREGATE EXPENDITURE AND OUTPUT April 12, 2016

Professor Christina Romer. LECTURE 18 TECHNOLOGY AND ECONOMIC GROWTH March 29, 2016

Pushing on a string: US monetary policy is less powerful in recessions

Research Division Federal Reserve Bank of St. Louis Working Paper Series

Professor Christina Romer. LECTURE 15 MACROECONOMIC VARIABLES AND ISSUES March 9, 2017

Lobbying, Procurement Allocation, and the. Employment Effect of Fiscal Stimulus

Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan

UNIVERSITY OF CALIFORNIA Economics 134 DEPARTMENT OF ECONOMICS Spring 2018 Professor David Romer LECTURE 9

Financial Liberalization and Neighbor Coordination

FISCAL STIMULUS IN ECONOMIC UNIONS: WHAT ROLE FOR STATES. Gerald Carlino Federal Reserve Bank of Philadelphia. Robert Inman University of Pennsylvania

Multiplier Effects of Federal Disaster-Relief Spending: Evidence from U.S. States and Households

Professor Christina Romer. LECTURE 15 MEASUREMENT AND BEHAVIOR OF REAL GDP March 8, 2018

Professor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 5

Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach

Economics 442 Macroeconomic Policy (Spring 2018) 3/7-3/12/2018. Instructor: Prof. Menzie Chinn UW Madison

Chapter 11: Fiscal Policy in the Short Run

Geographic Cross-Sectional Fiscal Spending Multipliers: What Have We Learned?

Discussion of Optimal Monetary Policy and Fiscal Policy Interaction in a Non-Ricardian Economy

On the Measurement of the Government Spending Multiplier in the United States An ARDL Cointegration Approach

10. Fiscal Policy and the Government Budget

Tax Cuts for Whom? Heterogeneous Effects of Income Tax Changes on Growth & Employment

Excess Capacity and Heterogeneity in the Fiscal Multiplier: Evidence from the Obama Stimulus Package

Government Spending Multipliers in Good Times and in Bad: Evidence from U.S. Historical Data

Decomposing Local Fiscal Multipliers: Evidence from Japan

Effects of Fiscal Shocks in a Globalized World

Lecture 7. Unemployment and Fiscal Policy

Macroeconomic Effects from Government Purchases and Taxes. Robert J. Barro and Charles J. Redlick Harvard University

Empirical evaluation of the 2001 and 2003 tax cut policies on personal consumption: Long Run impact

Fiscal Policy Part II

Cost Shocks in the AD/ AS Model

Macroeconomics 2301 Potential questions and study guide for Exam 2

14.02 Principles of Macroeconomics Problem Set # 1, Answers

Marginal Benefit Incidence of Pubic Health Spending: Evidence from Indonesian sub-national data

Fiscal Multipliers in Recessions

NBER WORKING PAPER SERIES FISCAL STIMULUS IN A MONETARY UNION: EVIDENCE FROM U.S. REGIONS. Emi Nakamura Jón Steinsson

Professor Christina Romer. LECTURE 24 INFLATION AND THE RETURN OF OUTPUT TO POTENTIAL April 21, 2016

ECO 209Y MACROECONOMIC THEORY AND POLICY LECTURE 3: AGGREGATE EXPENDITURE AND EQUILIBRIUM INCOME

INTRODUCTION FISCAL POLICY LEVERS TAXES AND SPENDING GOVERNMENT EXPENDITURE FISCAL POLICY PURCHASES VS. TRANSFERS

Testing the predictions of the Solow model:

WAS FISCAL STIMULUS IN USA IN RECENT CRISES REASONABLE? EMPIRICAL INVESTIGATION OF DISCRETIONAL FISCAL POLICY ON OUTPUT IN A SVEC FRAMEWORK

Professor Christina Romer. LECTURE 16 TECHNOLOGICAL CHANGE AND ECONOMIC GROWTH March 14, 2017

Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan

Part I. Please answer in the provided space only

Chapter 11 Fiscal Policy, Deficits, and Debt

Professor Christina Romer. LECTURE 16 TECHNOLOGICAL CHANGE AND ECONOMIC GROWTH March 13, 2018

Estimating the Economic Impacts of Highway Infrastructure

Essays in Public Economics. Zachary Liscow. A dissertation submitted in partial satisfaction of the. Requirements for the degree of

Sample Exam 1: QEII Labor Market Rescue?

Fiscal Space and the Aftermath of Financial Crises: How It Matters and Why

New Evidence on the Local Fiscal Multiplier and Employment. from Military Construction Spending. Emily Zheng. Texas A&M University

Government Spending Multipliers in Good Times. and in Bad: Evidence from U.S. Historical Data

Fiscal-Monetary Policy Coordination: A U.S. Perspective

Research Division Federal Reserve Bank of St. Louis Working Paper Series

What determines government spending multipliers?

Online Appendix: Asymmetric Effects of Exogenous Tax Changes

Government Consumption Spending Inhibits Economic Growth in the OECD Countries

Government Spending Multipliers under Zero Lower Bound: Evidence from Japan

OVERVIEW. 4. Equilibrium occurs at the level of income where the inflows equal the outflows, I + G = S + T.

WORKING PAPER NO FISCAL STIMULUS IN ECONOMIC UNIONS: WHAT ROLE FOR STATES? Gerald Carlino Federal Reserve Bank of Philadelphia

Government Spending Multipliers under Zero Lower Bound: Evidence from Japan

The Effect of Interventions to Reduce Fertility on Economic Growth. Quamrul Ashraf Ashley Lester David N. Weil. Brown University.

Growth in the US: A Macro and Global Perspective. Professor Pierre Yared. Columbia Business School Executive Education Program July 29-30, 2013

5IE475 Program Evaluation and Cost-Benefit Analysis

Employment Multipliers over the Business Cycle

Solutions for BUSI 101: Review and Discussion Questions Lesson 10 Page 1 of 10

ISSN CEP Discussion Paper No 1120 February The Household Effects of Government Spending Francesco Giavazzi and Michael McMahon

Transcription:

Economics 210c/236a Fall 2018 Christina Romer David Romer LECTURE 6 The Effects of Fiscal Changes: Cross-Section Evidence September 26, 2018

Office Hours No office hours this Thursday (9/27). Office hours Monday (10/1) 4 5:30 and Thursday (10/4) 2 4.

I. OVERVIEW OF STATE-BASED STUDIES OF THE IMPACT OF FISCAL CHANGES

How does monetary policy affect the fiscal multiplier?

Open Economy Relative Multiplier Multiplier: Effect of G on Y Relative: How relative G in a state or region affects relative Y or employment Open Economy: Are effects of spending in a state felt in the state?

How does the open economy relative multiplier compare with the closed economy aggregate multiplier? Impact of monetary policy State spillovers Impact of Ricardian equivalence and crowding out

II. CHODOROW-REICH, FEIVESON, LISCOW, AND WOOLSTON, DOES STATE FISCAL RELIEF DURING RECESSIONS INCREASE EMPLOYMENT? EVIDENCE FROM THE AMERICAN RECOVERY AND REINVESTMENT ACT

Experiment They Consider ARRA increased aid to states to pay for Medicaid (FMAP). Look at whether states that got more aid did better. Main outcome variable is employment by state.

Omitted Variable Problem More troubled states got more state fiscal relief in ARRA. Solution: IV using 2007 state FMAP spending per person as instrument for ARRA FMAP increase. Idea is that some states got more ARRA FMAP funds just because they had more generous systems before the recession.

C-R,F,L,W Specification Where: E s is employment in state s N s is the population aged 16+ in state s AID s is state fiscal relief received by state s Controls are state- and region-specific variables

Instrument From: Chodorow-Reich, Feiveson, Liscow, and Woolston

From: Chodorow-Reich, Feiveson, Liscow, and Woolston

Control Variables Region dummies Employment in manufacturing Lagged state employment Union share and Kerry vote share

From: Chodorow-Reich, Feiveson, Liscow, and Woolston

From: Chodorow-Reich, Feiveson, Liscow, and Woolston

From: Chodorow-Reich, Feiveson, Liscow, and Woolston

Timing of Impact Do a Jordà-type procedure. Run the cross-section regression many times, increasing the horizon by 1 month each time.

From: Chodorow-Reich, Feiveson, Liscow, and Woolston

From: Chodorow-Reich, Feiveson, Liscow, and Woolston

From: Chodorow-Reich, Feiveson, Liscow, and Woolston

Evaluation

III. NAKAMURA AND STEINSSON, FISCAL STIMULUS IN A MONETARY UNION: EVIDENCE FROM U.S. REGIONS

Experiment They Consider Time series-cross section data on defense procurement by state. Look at whether state GDP and employment respond to defense procurement by state.

From: Nakamura and Steinsson, Fiscal Stimulus in a Monetary Union

Nakamura and Steinsson s Specification Where: Y it is output in state i in period t G it is government procurement in state i in period t α i are state fixed effects γ t are year fixed effects

Omitted Variable Problem State may be able to argue for more defense spending when local conditions are weak. Could imagine OVB going the other way as well states with successful military contractors are better at winning more contracts. Going to use IV. Key assumption: national defense spending is determined by geopolitical events, not local conditions.

IV Approach Instruments are national defense spending as a share of GDP interacted with state dummy variables (so 50 instruments). Variation comes from interaction of national shocks and differences in how sensitive state defense spending is to national spending. Alternative variable (Bartik instrument) is G i /Y i in base period times G t /Y t (so 1 instrument).

From: Nakamura and Steinsson, Fiscal Stimulus in a Monetary Union

How good are their instruments? When use national defense interacted with state dummy, have 50 instruments. They tell us they have a weak instrument problem. With Bartik instrument, only have one instrument. No weak instrument problem. I would like to see more diagnostics on the first stage.

From: Nakamura and Steinsson, Fiscal Stimulus in a Monetary Union

From: Nakamura and Steinsson, Fiscal Stimulus in a Monetary Union

Nakamura and Steinsson s Specification Where: Y it is output in state i in period t G it is government procurement in state i in period t α i are state fixed effects γ t are year fixed effects I it is an indicator for a period of low economic slack

From: Nakamura and Steinsson, Fiscal Stimulus in a Monetary Union

Evaluation

Translating the Open-Economy Relative Multiplier into the Closed-Economy Aggregate Multiplier Write down a complicated, optimizing model with two regions and calibrate it. Generate data from the calibrated model based on different assumptions (such as sticky versus flexible prices, or accommodative versus counteracting monetary policy). Estimate OERM and CEAM from the generated data to see how they compare.

From: Nakamura and Steinsson, Fiscal Stimulus in a Monetary Union

From: Nakamura and Steinsson, Fiscal Stimulus in a Monetary Union

IV. HAUSMAN, FISCAL POLICY AND ECONOMIC RECOVERY: THE CASE OF THE 1936 VETERANS BONUS

1936 Veterans Bonus Average Bonus in 1936 was $547 From: Hausman, Fiscal Policy and Economic Recovery

Experiment He Considers Did the Veterans bonus raise consumption and output? Can t use aggregate time-series variation. He has four different approaches: Cross-state analysis Individual-level analysis of consumer behavior American Legion survey Narrative evidence

Cross-State Analysis What is his approach? What does it capture? (MPC and local spillovers) Data limitations

From: Hausman, Fiscal Policy and Economic Recovery

From: Hausman, Fiscal Policy and Economic Recovery

Could there be omitted variable bias?

Hausman s Specification Where: A s is new car sales per capita in state s X s is a vector of control variables (such as per capita auto sales in 1929, region fixed effects, farm share of the population, black share of the population)

From: Hausman, Fiscal Policy and Economic Recovery

From: Hausman, Fiscal Policy and Economic Recovery

Individual-Level Analysis Has detailed consumer expenditure data based on a survey in 1935 and 1936. Key feature: Some people were surveyed before the bonus, some after. If he knew veteran status, he could do a differencein-difference analysis to see if veterans raised consumption more than non-veterans following the bonus.

Hausman s Specification Where V i is a dummy for if the household contains a veteran and P i is a dummy for if the household was surveyed after the bonus. Consumption over Previous 12 mos. Pre-Bonus Post-Bonus Non-Veteran β 3 Veteran β 2 β 2 + β 3 + β 4 How much more does consumption rise post-bonus for a non-veteran? β 3 How much more does consumption rise post-bonus for a veteran? β 3 + β 4. So β 4 shows the effect on consumption post-bonus of a veteran versus a non-veteran.

Hausman s Data Problem Doesn t observe whether family got a bonus or veteran status. How does he get around this problem?

Hausman s Specification What covariates are included in Z j and Z i? From: Hausman, Fiscal Policy and Economic Recovery

From: Hausman, Fiscal Policy and Economic Recovery

From: Hausman, Fiscal Policy and Economic Recovery

From: Hausman, Fiscal Policy and Economic Recovery

From: Hausman, Fiscal Policy and Economic Recovery

American Legion Survey Another case where there is data one might not have expected. Under-utilized archivists can be your friend. Analogous to studies asking consumers how they plan to use tax rebates.

From: Hausman, Fiscal Policy and Economic Recovery

From: Hausman, Fiscal Policy and Economic Recovery

Narrative Evidence

From: Hausman, Fiscal Policy and Economic Recovery

From: Hausman, Fiscal Policy and Economic Recovery

Aggregate Impact of the Bonus From: Hausman, Fiscal Policy and Economic Recovery

Evaluation