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Fiscal News and Macroeconomic Volatility

  • Benjamin Born

    ()

  • Alexandra Peter

    ()

  • Johannes Pfeifer

    ()

This paper analyzes the contribution of anticipated capital and labor tax shocks to business cycle volatility in an estimated New Keynesian DSGE model. While fiscal policy accounts for 12 to 20 percent of output variance at business cycle frequencies, the anticipated component hardly matters for explaining fluctuations of real variables. Anticipated capital tax shocks do explain a sizable part of inflation and interest rate fluctuations, accounting for between 5 and 15 percent of total variance. In line with earlier studies, news shocks in total account for 20 percent of output variance. Further decomposing this news effect, we find that it is mostly driven by stationary TFP and non-stationary investment-specific technology.

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File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse08_2011.pdf
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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse08_2011.

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Length: 45
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:bon:bonedp:bgse08_2011
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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Web page: http://www.bgse.uni-bonn.de

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