DESPERATE TIMES CALL FOR DESPERATE MEASURES: GOVERNMENT SPENDING MULTIPLIERS IN HARD TIMES

We investigate state-dependent effects of fiscal multipliers and allow for endogenous sample splitting to determine whether the U.S. economy is in a slack state. When the endogenized slack state is estimated as the period of the unemployment rate higher than about 12%, the estimated cumulative multipliers are significantly larger during slack periods than nonslack periods and are above unity. We also examine the possibility of time-varying …