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What Accounts for the Changes in U.S. Fiscal Policy Transmission?

  • FLORIN O. BILBIIE
  • ANDRÉ MEIER
  • GERNOT J. MÜLLER

Using vector autoregressions on U.S. time series for 1957-79 and 1983-2004, we find government spending shocks to have stronger effects on output, consumption, and wages in the earlier period. We try to account for this observation within a DSGE model featuring price rigidities and limited asset market participation. Specifically, we estimate the structural parameters of the model for both periods by matching impulse responses. Model-based counterfactual experiments suggest that most of the changes in fiscal policy transmission are accounted for by increased asset market participation and the more active monetary policy of the Volcker-Greenspan period. Copyright (c) 2008 The Ohio State University.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1538-4616.2008.00166.x
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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 40 (2008)
Issue (Month): 7 (October)
Pages: 1439-1470

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Handle: RePEc:mcb:jmoncb:v:40:y:2008:i:7:p:1439-1470
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