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This paper empirically explores how fiscal policy (represented by increases in government spending) has asymmetric effects on economic activity at different levels of real interest rates. It suggests that the effect of fiscal policy depends on the level of real rates, since the Ricardian effect is smaller at lower financing costs of fiscal policy. Using threshold regression models on U.S. data, the paper provides new evidence that expansionary government spending is more conducive to short-run growth when real rates are low. It also finds asymmetric effects on interest rates and inflation, and threshold effects associated with substitution between financing methods.
Government spending policy -- Econometric models. --- Government spending policy -- United States -- Econometric models. --- Interest rates -- Econometric models. --- Interest rates -- United States -- Econometric models. --- Banks and Banking --- Inflation --- Macroeconomics --- Public Finance --- National Government Expenditures and Related Policies: General --- Interest Rates: Determination, Term Structure, and Effects --- Macroeconomics: Production --- Fiscal Policy --- Price Level --- Deflation --- Public finance & taxation --- Finance --- Expenditure --- Real interest rates --- Production growth --- Fiscal policy --- Expenditures, Public --- Interest rates --- Production --- Economic theory --- Prices --- United States --- Government spending policy --- Econometric models.
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