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Working paper

The Macroeconomic Effects of Government Spending Shocks in New Zealand (WP 21/02)

Issue date: 
Tuesday, 22 June 2021
Corporate author: 
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Document Date: 
Tuesday, 22 Jun 2021
Publication category: 
JEL classification: 
C32 - Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
E32 - Business Fluctuations; Cycles
E62 - Fiscal Policy
H30 - Fiscal Policies and Behavior of Economic Agents: General
H54 - National Government Expenditures and Related Policies: Infrastructures; Other Public Investment and Capital Stock


This paper estimates the macroeconomic effects of government spending shocks in New Zealand. Using a structural vector autoregression (SVAR) model, I find small output multipliers for government consumption but large multipliers for government investment. Importantly, the real exchange rate appreciates after positive government spending shocks, consistent with classic theory. Private consumption and private investment decrease after government consumption shocks, but increase after government investment shocks. I show that selecting the appropriate series for government investment is important to estimating its effects.


The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government. The New Zealand Treasury and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate.


The author would like to thank Alfred Haug, Eul Noh, and many colleagues within Treasury, including Anna Hamer-Adams, Andrew Binning, Angus Hawkins, Oscar Parkyn, Ashley Lienert and others, for their great comments that have improved this work. Peter Gardiner in particular has been very important in allowing this work to occur.

Last updated: 
Tuesday, 22 June 2021