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Measuring the Impact of Fiscal Policy in the Face of Anticipation: A Structural VAR Approach

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  • Mertens, Karel
  • Ravn, Morten O

Abstract

Empirical estimates of the impact of government spending shocks disagree on central issues such as the size of output multipliers and the responses of consumption and the real wage. One explanation for the disagreement is that fiscal shocks are often anticipated. Due to misspecification of the information set, anticipation effects may invalidate SVAR estimates of impulse responses. We use economic theory to derive a fiscal SVAR estimator that is applicable when fiscal shocks are anticipated. We study its properties and apply it to US data. We fail to find evidence that anticipation effects overturn the existing findings from the fiscal SVAR literature.

Suggested Citation

  • Mertens, Karel & Ravn, Morten O, 2009. "Measuring the Impact of Fiscal Policy in the Face of Anticipation: A Structural VAR Approach," CEPR Discussion Papers 7423, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7423
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    References listed on IDEAS

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    1. repec:nbr:nberch:13348 is not listed on IDEAS
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    More about this item

    Keywords

    anticipation effects; fiscal policy; structural vector autoregressions;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • 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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