The Impact of r-g on the Euro-Area Government Spending Multiplier

We compute government spending multipliers for the Euro Area (EA) contingent on interestgrowth differential, so-called r-g. Whether fiscal shock occurs when r-g is positive or negative matters size of multiplier. Median estimates vary conditional specification, but difference between in and regimes differs systematically from zero with very high probability. Over medium run (5 years), median cumulated range 1.22 1.77 negative, 0.51 1.26 positive. show that results are not driven by state business cycle, monetary policy stance, level debt, multiplier inversely correlated The calculations based a factor-augmented interacted panel vector-autoregressive model. econometric approach deals several technical problems highlighted empirical macroeconomic literature, including issues foresight limited information.