Quantifying the Impact of Fiscal Policy on Economic Growth in the Romanian Economy: A Bayesian Approach

Abstract

 Abstract—The interest in fiscal policy has gained momentum due to the recent financial crisis and to the fact that monetary policy has proved inefficient in fighting recession. This paper studies the impact of fiscal policy on aggregate demand in the Romanian economy using Bayesian techniques. Therefore, a Bayesian VAR framework over 2000Q1-2014Q2 period is considered in order to simulate the responses of economic growth to fiscal policy shocks. The main findings suggest that the impact of government expenditure and revenue shocks on economic growth is nevertheless insignificant and therefore, discretionary policy measures are negligible in a small open economy like Romania. Index Terms—Bayesian VAR models, economic growth, Fiscal Compact, fiscal multipliers, fiscal shocks.