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Macroeconomic Effects of Government Spending Shocks: New Evidence Using Natural Disaster Relief in Korea

  • Weonho Yang
  • Jan Fidrmuc
  • Sugata Ghosh

We investigate the macroeconomic effects of government spending shocks in Korea. We compare results obtained with two alternative approaches: the narrative approach and Structural Vector-Autoregressive model (SVAR). We propose a new methodology for identifying exogenous and unexpected fiscal shocks under the narrative approach: natural disasters and the associated government emergency spending in the wake of such disasters. Our results suggest that when government spending increases, the responses of GDP, private consumption, real wage and investment are all positive, which is in accord with the New Keynesian model. Similar results are obtained with both approaches. However, comparing the two approaches suggests that the timing is very important in identifying government spending shocks due to the anticipation effects of fiscal policy.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-09/cesifo1_wp3943.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3943.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3943
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  11. Karel Mertens & Morten Ravn, 2010. "Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated U.S. Tax Policy Shocks," NBER Working Papers 16289, National Bureau of Economic Research, Inc.
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  16. Kristie M. Engemann & Michael T. Owyang & Sarah Zubairy, 2008. "A primer on the empirical identification of government spending shocks," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 117-132.
  17. Crespo Cuaresma & Hlouskova & Obersteiner, 2008. "Natural Disasters As Creative Destruction? Evidence From Developing Countries," Economic Inquiry, Western Economic Association International, vol. 46(2), pages 214-226, 04.
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