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MAFIA AND PUBLIC SPENDING: EVIDENCE ON 
THE FISCAL MULTIPLIER FROM A 
QUASI-EXPERIMENT 
Antonio Acconcia, Giancarlo Corset...
The main question 
I Transmission of fiscal policy: How to recover ‘multiplier 
effects’? 
I Focus of the debate: Identify...
The main question (cont.) 
I Determinants of fiscal transmission... 
I monetary policy: attitude of central bank towards i...
The main question (cont.) 
I By way of example, the following theoretical example draws on 
a 2010 paper on the transmissi...
Model 
I Standard new Keynesian small open-economy model 
I Imperfectly competitive firms produce country specific varieti...
The transmission mechanism in the New Keynesian NK framework 
I Well known that in NK model consumption demand is driven b...
The transmission mechanism in the New Keynesian NK framework 
I Well known that in NK model consumption demand is driven b...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER F...
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Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER FROM A QUASI-EXPERIMENT

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Bank of Estonia
Tallinn, August 19 2014

Published in: Economy & Finance
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Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER FROM A QUASI-EXPERIMENT

  1. 1. MAFIA AND PUBLIC SPENDING: EVIDENCE ON THE FISCAL MULTIPLIER FROM A QUASI-EXPERIMENT Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli Bank of Estonia Tallin, August 19 2014 1 / 74
  2. 2. The main question I Transmission of fiscal policy: How to recover ‘multiplier effects’? I Focus of the debate: Identify innovations to spending or taxation, distinct from variations that are systematically related to the business cycle. I Reverse causation and anticipation effects may spuriously raise, or lower, estimated multipliers (see e.g. Barro and Redlick 2011 and Ramey 2011). I But suppose we can identify a truly exogenous shock. Its transmission can be expected to be different across economic ‘environments’, reflecting policy, strucutal and cyclical factors. I A single estimate of ‘the’ multiplier cannot provide a good guidance to policymaker in all circumstances. 2 / 74
  3. 3. The main question (cont.) I Determinants of fiscal transmission... I monetary policy: attitude of central bank towards inflation; exchange rate regime; constraints on monetary policy (zero lower bound) I budget adjustment: current and prospective tax hikes and spending cuts I trade and financial openness openness, size of the economy I cyclical conditions I state of the financial (banking) system I wealth distribution within the country; risk sharing across border I ...vary both across countries, but also over time (em see e.g. Christiano et al. 2009, Corsetti et al. 2009, Leeper et al. 2009, and Woodford 2010 among others). 3 / 74
  4. 4. The main question (cont.) I By way of example, the following theoretical example draws on a 2010 paper on the transmission of spending shock across exchange rate regimes joint with Keith Kuester and Gernot Mueller. I To connect with the rest of the talk, I focus on the effect of a contraction in spending. 4 / 74
  5. 5. Model I Standard new Keynesian small open-economy model I Imperfectly competitive firms produce country specific varieties I Pricing in producer currency, prices sticky I Domestic consumption biased towards home goods I Government spending falls on home goods I Complete markets versus incomplete markets/limited participation (a fraction of households () are without access to asset market) I Policies I Monetary policy: interest rate feedback rule or peg I Lump-sum taxes respond to spending and debt 5 / 74
  6. 6. The transmission mechanism in the New Keynesian NK framework I Well known that in NK model consumption demand is driven by the long-term rate (real return on a bond of infinite duration). 6 / 74
  7. 7. The transmission mechanism in the New Keynesian NK framework I Well known that in NK model consumption demand is driven by the long-term rate (real return on a bond of infinite duration). I In standard specification with separable preferences, solving the Euler forward, holding the expectations hypothesis: ct =

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