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Empirical Investigation of Fiscal Policy Shocks in the UK

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  • Kamal, Mona

Abstract

This article examines fiscal policy shocks in the UK through using a Bayesian Vector Autoregression (BVAR) model which applies Mountford and Uhlig (2009) type sign-restriction. It investigates the impact of three fiscal policy experiments on macroeconomic variable. Specifically, the Deficit-Financed Spending Increase (DFSI), the Deficit-Financed Tax Cut (DFTC), and the Balanced-Budget Spending Increase (BBSI). The results show that, the policy conclusion differs according to the period under investigation.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26473.

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Date of creation: 01 Apr 2010
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Handle: RePEc:pra:mprapa:26473

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Keywords: Fiscal policy; Bayesian VAR analysis; policy experiment.;

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  1. Craig Burnside & Martin Eichenbaum & Jonas Fisher, 2003. "Fiscal Shocks and Their Consequences," NBER Working Papers 9772, National Bureau of Economic Research, Inc.
  2. Gert Peersman, 2005. "What caused the early millennium slowdown? Evidence based on vector autoregressions," Bank of England working papers 272, Bank of England.
  3. Roberto Perotti, 2005. "Estimating the effects of fiscal policy in OECD countries," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco.
  4. Andrew Mountford & Harald Uhlig, 2005. "What are the Effects of Fiscal Policy Shocks?," SFB 649 Discussion Papers SFB649DP2005-039, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  5. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, American Economic Association, vol. 100(3), pages 763-801, June.
  6. Bagliano, Fabio-Cesare & Favero, Carlo A, 1997. "Measuring Monetary Policy with VAR Models: An Evaluation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1743, C.E.P.R. Discussion Papers.
  7. Barro, Robert J., 1987. "Government spending, interest rates, prices, and budget deficits in the United Kingdom, 1701-1918," Journal of Monetary Economics, Elsevier, Elsevier, vol. 20(2), pages 221-247, September.
  8. Wendy Edelberg & Martin Eichenbaum & Jonas D.M. Fisher, 1998. "Understanding the Effects of a Shock to Government Purchases," NBER Working Papers 6737, National Bureau of Economic Research, Inc.
  9. Martin Eichenbaum & Jonas Fisher, 2004. "Fiscal policy in the aftermath of 9/11," Working Paper Series, Federal Reserve Bank of Chicago WP-04-06, Federal Reserve Bank of Chicago.
  10. Morten O. Ravn & Stephanie Schmitt-Grohé & Martín Uribe, 2007. "Explaining the Effects of Government Spending Shocks on Consumption and the Real Exchange Rate," NBER Working Papers 13328, National Bureau of Economic Research, Inc.
  11. Ricardo M. Sousa & António Afonso, 2008. "The Macroeconomic Effects of Fiscal Policy," NIPE Working Papers, NIPE - Universidade do Minho 22/2008, NIPE - Universidade do Minho.
  12. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, American Economic Association, vol. 83(3), pages 315-34, June.
  13. Julio J. Rotemberg & Michael Woodford, 1989. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," NBER Working Papers 3206, National Bureau of Economic Research, Inc.
  14. Fabio Canova & Gianni De Nicolo, 2000. "Monetary disturbances matter for business fluctuations in the G-7," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 660, Board of Governors of the Federal Reserve System (U.S.).
  15. Sims, Christopher A & Zha, Tao, 1998. "Bayesian Methods for Dynamic Multivariate Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 949-68, November.
  16. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(4), pages 1329-1368, November.
  17. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
  18. Perotti, Roberto, 2005. "Estimating the Effects of Fiscal Policy in OECD Countries," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4842, C.E.P.R. Discussion Papers.
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Cited by:
  1. Kamal, Mona, 2011. "Bayesian Estimation of Dynamic Stochastic General Equilibrium Model Using UK Data," MPRA Paper 28988, University Library of Munich, Germany.

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