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New-Keynesian or RBC Transmission? The Effects of Fiscal Shocks in Labour Markets

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  • Pappa, Evi

Abstract

We study the mechanics of transmission of fiscal shocks to labour markets. We characterize a set of robust implications following government consumption, investment and employment shocks in a RBC and a New-Keynesian model and use part of them to identify shocks in the data. In line with the New-Keynesian story, shocks to government consumption and investment increase real wages and employment contemporaneously both in US aggregate and in US state data. The dynamics in response to employment shocks are mixed, but in many cases are inconsistent with the predictions of the RBC model.

Suggested Citation

  • Pappa, Evi, 2005. "New-Keynesian or RBC Transmission? The Effects of Fiscal Shocks in Labour Markets," CEPR Discussion Papers 5313, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5313
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    Cited by:

    1. Athanasios Tagkalakis, 2006. "The effects of macroeconomic policy shocks on the UK labour market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(3), pages 229-244.
    2. Marcellino, Massimiliano & Sivec, Vasja, 2016. "Monetary, fiscal and oil shocks: Evidence based on mixed frequency structural FAVARs," Journal of Econometrics, Elsevier, vol. 193(2), pages 335-348.
    3. 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.
    4. Ignacio Lozano & Karen Rodríguez, 2011. "Assessing the macroeconomic effects of fiscal policy in Colombia," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(3), pages 206-228, August.
    5. Ignacio Lozano Espitia & Karen Rodríguez, 2009. "Assessing the Macroeconomic Effects of Fiscal," BORRADORES DE ECONOMIA 005386, BANCO DE LA REPÚBLICA.
    6. Juergen von Hagen, 2008. "The Role of Contracting Schemes for Assessing the Welfare Costs of Nominal Rigidities," 2008 Meeting Papers 827, Society for Economic Dynamics.
    7. Forni, Lorenzo & Monteforte, Libero & Sessa, Luca, 2009. "The general equilibrium effects of fiscal policy: Estimates for the Euro area," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 559-585, April.
    8. Valerie A. Ramey, 2011. "Can Government Purchases Stimulate the Economy?," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 673-685, September.
    9. Lauren Cohen & Joshua D. Coval & Christopher Malloy, 2010. "Do Powerful Politicians Cause Corporate Downsizing?," NBER Working Papers 15839, National Bureau of Economic Research, Inc.
    10. Owyang, Michael T. & Zubairy, Sarah, 2013. "Who benefits from increased government spending? A state-level analysis," Regional Science and Urban Economics, Elsevier, vol. 43(3), pages 445-464.
    11. Roberto Perotti, 2008. "In Search of the Transmission Mechanism of Fiscal Policy," NBER Chapters,in: NBER Macroeconomics Annual 2007, Volume 22, pages 169-226 National Bureau of Economic Research, Inc.
    12. Ardagna, Silvia, 2007. "Fiscal Policy in Unionized Labor Markets," Scholarly Articles 2580048, Harvard University Department of Economics.
    13. Frederick van der Ploeg, 2006. "Rolling back the public sector: differential effects on employment, investment, and growth," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 103-122, January.
    14. Kriwoluzky, Alexander, 2012. "Pre-announcement and timing: The effects of a government expenditure shock," European Economic Review, Elsevier, vol. 56(3), pages 373-388.
    15. Ardagna, Silvia, 2007. "Fiscal policy in unionized labor markets," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1498-1534, May.
    16. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 1-50.
    17. Linnemann, Ludger, 2009. "Macroeconomic effects of shocks to public employment," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 252-267, June.
    18. Rafiq, Sohrab & Zeufack, Albert, 2012. "Fiscal multipliers over the growth cycle : evidence from Malaysia," Policy Research Working Paper Series 5982, The World Bank.

    More about this item

    Keywords

    labour markets; sign-restrictions; sticky and flexible prices; VARs;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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