The Effects of Government Expenditure on the Output: A Real Business Cycle Analysis for the Romanian Economy

Abstract

Abstract One of the most researched topics in macroeconomics is the development and implementation of Real Business Cycle models. This article presents a small Real Business Cycle model, which is built for the Romanian economy, with data from the 2nd quarter of 1995 through the 3rd quarter of 2022. The main aim of this analysis is to assess the historical influence of exogenous and government spending shocks on economic growth. In order to obtain accurate results, we implemented a Bayesian estimation technique for calculating the parameters of the model. The main findings indicate the significant exogenous shocks effect on the Romanian economy, and the way in which government spending had a positive effect on increasing economic growth for the period between the 1st quarter 2000 and the 3rd quarter of 2022.