Fiscal developments and financial stress: a threshold VAR analysis
AbstractWe use a threshold VAR analysis to study whether the effects of fiscal policy on economic activity differ depending on financial market conditions. In particular, we investigate the possibility of a non-linear propagation of fiscal developments according to different financial market stress regimes. More specifically we employ a quarterly dataset, for the U.S., the U.K., Germany and Italy, for the period 1980:4-2009:4, encompassing macro, fiscal and financial variables. The results show that (i) the use of a nonlinear framework with regime switches is corroborated by nonlinearity tests; (ii) the responses of economic growth to a fiscal shock are mostly positive in both financial stress regimes; (iii) financial stress has a negative effect on output growth and worsens the fiscal position; (iv) the nonlinearity in the response of output growth to a fiscal shock is mainly associated with different behaviour across regimes; (v) the size of the fiscal multipliers is higher than average in the last crisis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2011/16.
Date of creation: Aug 2011
Date of revision: Aug 2011
fiscal policy; financial markets; threshold VAR;
Other versions of this item:
- António Afonso & Jaromír Baxa & Michal Slavík, 2011. "Fiscal developments and financial stress: a threshold VAR analysis," Working Papers 2011/11, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon..
- António Afonso & Jaromír Baxa & Michal Slavík, 2011. "Fiscal developments and financial stress: a threshold VAR analysis," Working Paper Series 1319, European Central Bank.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-25 (All new papers)
- NEP-EEC-2011-06-25 (European Economics)
- NEP-FDG-2011-06-25 (Financial Development & Growth)
- NEP-MAC-2011-06-25 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wolff, Guntram B. & Tenhofen, Jörn & Heppke-Falk, Kirsten H., 2006.
"The macroeconomic effects of exogenous fiscal policy shocks in Germany: a disaggregated SVAR analysis,"
Discussion Paper Series 1: Economic Studies
2006,41, Deutsche Bundesbank, Research Centre.
- Jörn Tenhofen & Guntram B. Wolff & Kirsten H. Heppke-Falk, 2010. "The Macroeconomic Effects of Exogenous Fiscal Policy Shocks in Germany: A Disaggregated SVAR Analysis," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 230(3), pages 328-355, June.
- van Aarle, Bas & Garretsen, Harry & Gobbin, Niko, 2003. "Monetary and fiscal policy transmission in the Euro-area: evidence from a structural VAR analysis," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 609-638.
- Javier Andrés & José Boscá & Francisco Ferri, 2012.
"Household leverage and fiscal multipliers,"
Banco de EspaÃÂ±a Working Papers
1215, Banco de EspaÃ±a.
- Tommaso Ferraresi & Andrea Roventini & Giorgio Fagiolo, 2013.
"Fiscal Policies and Credit Regimes: A TVAR Approach,"
LEM Papers Series
2013/03, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Tommaso Ferraresi & Andrea Roventini & Giorgio Fagiolo, 2013. "Fiscal policies and credit regimes: a tvar approach," Documents de Travail de l'OFCE 2013-02, Observatoire Francais des Conjonctures Economiques (OFCE).
- Tommaso Ferraresi & Andrea Roventini & Giorgio Fagiolo, 2013. "Fiscal Policies and Credit Regimes: A TVAR Approach," Working Papers 03/2013, University of Verona, Department of Economics.
- Giovanni Callegari & Giovanni Melina & Nicoletta Batini, 2012. "Successful Austerity in the United States, Europe and Japan," IMF Working Papers 12/190, International Monetary Fund.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lenka Herrmannova).
If references are entirely missing, you can add them using this form.