Analysis of the effects of fiscal policy shocks in the Baltic region

Recent events have highlighted the potential importance of nonlinear efiects of flscal variables (notably debt and deflcits) on interest rates: While in times when government solvency is not a concern the standard crowding-out efiects are of moderate magnitude, in times when default risk becomes an issue the interest rate efiects can become very large. This paper provides new evidence on the magnitude of these efiects. For the case when default risk is not a concern, it uses an arbitrage-free term structure model to estimate the dynamic efiects of flscal policy shocks on interest rates along the entire maturity spectrum. For the case when default risk becomes a concern (thereby violating a central assumption of the term structure model), I present evidence based on EMU government bond spread regressions on time-varying efiects of national flscal policies on spreads as well as the time-varying sensitivity of yield spreads to international risk aversion as a function of the state of flscal policy. JEL classiflcation: E6, H6.

Introduction

The Macroeconomic Effects of Exogenous Fiscal Policy Shocks in Germany: A Disaggregated SVAR Analysis

Summary We investigate the effects of fiscal policy shocks on the German economy extending the SVAR approach of Blanchard and Perotti (2002). Direct government expenditure shocks are found to increase output and private consumption on impact. The output multiplier is smaller than one and is falling rather quickly reaching zero after 3 years. Government operating expenditure has size able positive effects on output, in the long run in particular due to public capital formation. Compensation of public employees is not effective in stimulating the economy.Government net revenue shocks do not affect output significantly. Indirect taxes have little effects, while direct taxes lower output significantly. Overall, the effects of fiscal policy are short-lived with the exception of public investment increases.

The Effects of Fiscal Policy Shocks in Romania. A SVAR Approach

The real output deterioration, high fiscal deficits and increased sovereign debt burden represents key phenomena that affected the maneuverability of fiscal authorities in the early crisis years. Controversy between fiscal sustainability and fiscally driven economic recovery fueled a large number of academic and policy discussions about the appropriate response of governments to the crisis challenges. Empirical literature provides mixed evidence about the effects of fiscal policy adjustments on the macroeconomic performance. Moreover, pro-cyclical patterns in fiscal policies of many countries during the pre-crisis period did not reveal clear lessons learned that would be beneficial for fiscal authorities during the crisis years. In the paper we examine effects of the fiscal policy shocks in CE3 (the Slovak Republic, the Czech Republic and Hungary) within different stages of the business cycle by employing threshold vector autoregression (TVAR) model. We calculate fiscal multipliers and generalized impulse-response functions to assess the responsiveness of the real output to the fiscal policy adjustments. The main objective is to determine whether effects of the fiscal policy shocks differ during expansion and recession. Our results indicate that the size of fiscal multipliers and responsiveness of the real output are generally higher for spending fiscal shocks while effects of revenue fiscal shocks are much less dynamic in all three countries. Moreover, results differs between upper (expansion) and lower (recession) regime as well as for the per-crisis and crisis periods.

Macroeconomic impacts of monetary and fiscal policy in the euro area in times of shifting policies: A SVAR approach

No AccessThe effects of fiscal policy shocks on macroeconomic variables in developing countries : a meta-analysis of the DSGE literature Adem Feto M.K. Jayamohan Arnis Vilks Adem Feto0 Search for more papers by this author M.K. Jayamohan0 Search for more papers by this author Arnis Vilks1 Search for more papers by this author Affiliations 0Bahir Dar University, Ethiopia 1Graduate School of Management, Germany Published Online:1 Mar 2021https://hdl.handle.net/10520/ejc-aa_ajber_v16_n1_a1SectionsPDF ToolsAdd to favouritesDownload CitationsTrack Citations ShareShare onFacebookTwitterLinked InRedditGMailHotmailYammer AboutAbstractStabilization of the economy through fiscal policies has been a broadly discussed subject over many decades. It gained momentum again after the 2008 global recession and is of utmost interest with regard to the COVID-19 crisis. The purpose of this paper is to examine the effects of fiscal policy on output and inflation. The data used to conduct the meta-analysis consist of empirical and calibrated fiscal impulse values of Dynamic Stochastic General Equilibrium studies and databases. An increase in fiscal policy shock by one percent leads to a one-period rise in output and inflation by 0.104 and 0.03 percent. Studies that employ the Bayesian method deliver higher effect. The interaction of fiscal impulse and interest jointly affect the output. Fiscal policy intervention in investment has more effect on growth than inflation-friendly government consumption. This study would help policy makers design stabilization strategies, and researchers to further investigate the subject matter and reconcile the contradictory conclusions of previous studies. Next article FiguresReferencesRelatedDetails None Volume 16, Issue 1 | Mar 2021 AffiliationAdonis & Abbey PublishersThe International Bibliography of Social Sciences (IBSS)EnglishBusiness and FinanceInternational JournalsAccreditationThe International Bibliography of Social Sciences (IBSS)LanguagesEnglish InformationCopyright © 2021, Adonis & Abbey Publishers:All rights reservedKeywordsDSGE modelDeveloping countriesFIVMeta-analysisFiscal policy Disclosure The authors confirm that the manuscript has been read and approved by all named authors and that there are no other persons who satisfied the criteria for authorship but are not listed. The authors confirm that they have given due consideration to the protection of intellectual property associated with this work and that there are no impediments to publication, including the timing of publication, with respect to intellectual property. Ethical conduct of research The authors state that they have obtained appropriate institutional review board outlined in the Declaration of Helsinki for all human or animal experimental investigations. A signed informed consent document has been obtained from all participants included in the study.

Measuring the effects of discretionary fiscal policy is both difficult and controversial, as some explicit or implicit identifying assumptions need to be made to isolate exogenous and unanticipated changes in taxes and government spending. Studies based on structural vector autoregressions typically achieve identification by restricting the contemporaneous interaction of fiscal and non-fiscal variables in a rather arbitrary way. In this paper, we relax those restrictions and identify fiscal policy shocks by exploiting the conditional heteroscedasticity of the structural disturbances. We use this methodology to evaluate the macroeconomic effects of fiscal policy shocks in the U.S. before and after 1979. Our results show substantive differences in the economy’s response to government spending and tax shocks across the two periods. Importantly, we find that increases in public spending are, in general, more effective than tax cuts in stimulating economic activity. A key contribution of this study is to provide a formal test of the identifying restrictions commonly used in the literature.

Measuring the effects of fiscal policy

The Impact of Fiscal Policy on Economic Activity Over the Business Cycle - Evidence from a Threshold VAR Analysis

Stock market response to monetary and fiscal policy shocks: Multi-country evidence

Comment

Interest in assessing the effects of fiscal policy shocks on macroeconomic variables, especially on GDP, has surged in recent years, since it was expected to reestablish the economic balance after the recent recession. The majority of empirical studies estimate the impact of fiscal policy on economic activity using vector autoregressive (VAR) models. This paper analyzes the effect of fiscal shocks on economic activity by applying the structural VAR methodology proposed by Blanchard and Perotty (2002) to Moroccan data. The empirical findings are consistent with other studies related to emerging economies. This assessment reveals a positive impact of expansionary fiscal policy on economic activity. However, the fiscal multipliers are found to be very small, meaning that the economic activity is not significantly influenced by fiscal policy shocks.

Even if fiscal policy measures of countries show similarities, these measures have an important role in depth of recession and depression, reestablishment of market confidence and determination of the duration of economic recovery together with stability and elasticity of domestic financial and economic system. In the study, the effects of fiscal policies, which were implemented in Turkey during global crisis, on growth trend of the country in the period of crisis were examined. The effects of fiscal policy shocks on national income were examined through structural VAR system by using the data of the period of 2006-2012 and it was seen that the effects of net tax income and public expenditures in the model on growth was positive. On the basis of empirical findings of the study, it can be said that fiscal policies which were implemented in Turkey during last global crisis partially have growth-increasing effect.