The article documents the construction of a narrative instrument for government investment, used in the paper ‘An Estimation and Decomposition of the Government Investment Multiplier’.
We construct a narrative instrument for government investment from official records in Germany. Using structural vector autoregressions, we document a significant crowding-in of private investment and an output multiplier of roughly 2. Then, we match a New Keynesian dynamic stochastic general equilibrium model to the empirical responses, and we decompose the multiplier into three channels. Public investment ...