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

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  • Weonho Yang
  • Jan Fidrmuc
  • Sugata Ghosh

Abstract

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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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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Keywords: exogenous fiscal shocks; natural disaster relief expenditure; narrative approach; structural vector-autoregressive model;

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Find related papers by JEL classification:
  • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
  • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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  1. Aiyagari, S. Rao & Christiano, Lawrence J. & Eichenbaum, Martin, 1992. "The output, employment, and interest rate effects of government consumption," Journal of Monetary Economics, Elsevier, vol. 30(1), pages 73-86, October.
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Cited by:

  1. Jan Fidrmuc & Sugata Ghosh & Weonho Yang, 2015. "Natural Disasters, Government Spending, and the Fiscal Multiplier," CESifo Working Paper Series 5665, CESifo Group Munich.

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