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Pre-announcement and timing: The effects of a government expenditure shock

  • Kriwoluzky, Alexander

An econometric strategy to identify a pre-announced fiscal policy shock is proposed. I show that the reduced form innovations can be recovered by estimating a Vector-moving-average model using the Kalman filter. The structural effects are identified exploiting the shock's pre-announced nature, which leads to potentially different signs of the responses of some endogenous variables during the announcement and after the realization of the shock. I illustrate my strategy by identifying a pre-announced shock to government consumption expenditures. I find that the response of private consumption is significantly negative on impact, rises and becomes significantly positive two quarters after the realization of the policy shock.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 3 ()
Pages: 373-388

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:3:p:373-388
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