DP15330 Should we trust cross sectional multiplier estimates?
|Publication Date:||October 2020|
|Date Revised:||October 2020|
|Keyword(s):||Cross sectional methods, dynamic heterogeneity, fiscal multipliers, Monetary pass-through, partial pooling|
|JEL(s):||E0, H6, H7|
|Programme Areas:||Public Economics, International Macroeconomics and Finance, Monetary Economics and Fluctuations|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=15330|
I examine the properties of cross sectional estimates of multipliers, elasticities, or pass-throughs when the data is generated by a conventional multi-unit time series specification. A number of important biases plague estimates; the most relevant one occurs when the cross section is not dynamic homogenous. I suggest methods that can deal with this problem and show the magnitude of the biases cross sectional estimators display in an experimental setting. I contrast average time series and average cross sectional estimates of local fiscal multipliers for US states.