IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/100737.html
   My bibliography  Save this paper

Fiscal Policy Innovations In Advanced Economies

Author

Listed:
  • Ackon, Kwabena Meneabe

Abstract

Unprecedented is a word that best describes the current state of advanced economies. Interest rates are low in many advanced countries and negative in a few others suggesting that monetary policy has lost its effectiveness. The economic policy tool that has not been implemented yet by many advanced economies is fiscal policy. This thesis studies the effect of fiscal policy in USA, UK and Germany and find positive effects of extra government purchases on output, inflation, private consumption, business investment and wages. As a contribution to the academic literature on fiscal policy, this thesis estimates the impact of automatic stabilisers on economic activity and finds it holds predictive content for the path of output and inflation with both showing a positive response. Furthermore, this thesis adds to the literature on state-dependence fiscal policy by using a novel econometric approach to study the effect of expansionary fiscal policy during recessions.

Suggested Citation

  • Ackon, Kwabena Meneabe, 2020. "Fiscal Policy Innovations In Advanced Economies," MPRA Paper 100737, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:100737
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/100737/1/MPRA_paper_100737.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cogan, John F. & Cwik, Tobias & Taylor, John B. & Wieland, Volker, 2010. "New Keynesian versus old Keynesian government spending multipliers," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 281-295, March.
    2. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393, Elsevier.
    3. Renee Courtois Haltom & Pierre-Daniel G. Sarte, 2011. "Is stimulative fiscal policy more effective at the zero lower bound?," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, issue Aug.
    4. Braun, R. Anton & Körber, Lena Mareen, 2011. "New Keynesian dynamics in a low interest rate environment," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 2213-2227.
    5. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    6. Gali, Jordi, 1994. "Government size and macroeconomic stability," European Economic Review, Elsevier, vol. 38(1), pages 117-132, January.
    7. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78-121.
    8. Olivier J. Blanchard & Daniel Leigh, 2013. "Growth Forecast Errors and Fiscal Multipliers," American Economic Review, American Economic Association, vol. 103(3), pages 117-120, May.
    9. Vasco Cúrdia & Michael Woodford, 2010. "Credit Spreads and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 3-35, September.
    10. Andrew Mountford & Harald Uhlig, 2009. "What are the effects of fiscal policy shocks?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 960-992.
    11. Bachmann, Rüdiger & Sims, Eric R., 2012. "Confidence and the transmission of government spending shocks," Journal of Monetary Economics, Elsevier, vol. 59(3), pages 235-249.
    12. Tatiana Kirsanova & Sven Jari Stehn & David Vines, 2005. "The Interactions between Fiscal Policy and Monetary Policy," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 21(4), pages 532-564, Winter.
    13. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    14. Nicolas Carnot & Vincent Koen & Bruno Tissot, 2005. "Economic Forecasting," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-00581-5, October.
    15. Matthew Canzoneri & Fabrice Collard & Harris Dellas & Behzad Diba, 2016. "Fiscal Multipliers in Recessions," Economic Journal, Royal Economic Society, vol. 126(590), pages 75-108, February.
    16. Tagkalakis, Athanasios, 2008. "The effects of fiscal policy on consumption in recessions and expansions," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1486-1508, June.
    17. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 1-50.
    18. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
    19. Lawrence J. Christiano & Martin S. Eichenbaum & Mathias Trabandt, 2015. "Understanding the Great Recession," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 110-167, January.
    20. Alfonso ARPAIA & Alessandro TURRINI, 2008. "Government Expenditure and Economic Growth in the EU: Long-Run Tendencies and Short-Term Adjustment," EcoMod2008 23800006, EcoMod.
    21. Boneva, Lena Mareen & Braun, R. Anton & Waki, Yuichiro, 2016. "Some unpleasant properties of loglinearized solutions when the nominal rate is zero," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 216-232.
    22. Dupor, Bill & Guerrero, Rodrigo, 2017. "Local and aggregate fiscal policy multipliers," Journal of Monetary Economics, Elsevier, vol. 92(C), pages 16-30.
    23. Caldara, Dario & Kamps, Christophe, 2008. "What are the effects of fiscal policy shocks? A VAR-based comparative analysis," Working Paper Series 877, European Central Bank.
    24. Krugman, Paul, 2000. "How Complicated Does the Model Have to Be?," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 16(4), pages 33-42, Winter.
    25. Valerie A. Ramey & Sarah Zubairy, 2018. "Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 850-901.
    26. Lütkepohl,Helmut & Krätzig,Markus (ed.), 2004. "Applied Time Series Econometrics," Cambridge Books, Cambridge University Press, number 9780521547871, September.
    27. Ramey, Valerie A. & Shapiro, Matthew D., 1998. "Costly capital reallocation and the effects of government spending," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 145-194, June.
    28. Fatás, Antonio & Mihov, Ilian, 2001. "The Effects of Fiscal Policy on Consumption and Employment: Theory and Evidence," CEPR Discussion Papers 2760, C.E.P.R. Discussion Papers.
    29. Joseph E. Stiglitz, 2016. "How to Restore Equitable and Sustainable Economic Growth in the United States," American Economic Review, American Economic Association, vol. 106(5), pages 43-47, May.
    30. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    31. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1329-1368.
    32. Lütkepohl,Helmut & Krätzig,Markus (ed.), 2004. "Applied Time Series Econometrics," Cambridge Books, Cambridge University Press, number 9780521839198, September.
    33. Ravn, Morten O. & Schmitt-Grohé, Stephanie & Uribe, Martín, 2012. "Consumption, government spending, and the real exchange rate," Journal of Monetary Economics, Elsevier, vol. 59(3), pages 215-234.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ackon, Kwabena Meneabe, 2018. "Essays In Fiscal Policy And State Dependence Fiscal Policy Innovations Using A New Econometric Approach," MPRA Paper 100739, University Library of Munich, Germany.
    2. Andrea Boitani & Salvatore Perdichizzi, 2018. "Public Expenditure Multipliers in recessions. Evidence from the Eurozone," DISCE - Working Papers del Dipartimento di Economia e Finanza def068, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    3. Salvatore Perdichizzi, 2017. "Estimating Fiscal multipliers in the Eurozone. A Nonlinear Panel Data Approach," DISCE - Working Papers del Dipartimento di Economia e Finanza def058, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    4. Ramey, V.A., 2016. "Macroeconomic Shocks and Their Propagation," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 71-162, Elsevier.
    5. Jørgensen, Peter L. & Ravn, Søren H., 2022. "The inflation response to government spending shocks: A fiscal price puzzle?," European Economic Review, Elsevier, vol. 141(C).
    6. Matthew Canzoneri & Fabrice Collard & Harris Dellas & Behzad Diba, 2016. "Fiscal Multipliers in Recessions," Economic Journal, Royal Economic Society, vol. 126(590), pages 75-108, February.
    7. Virkola, Tuomo, 2014. "Exchange Rate Regime, Fiscal Foresight and the Effectiveness of Fiscal Policy in a Small Open Economy," ETLA Reports 20, The Research Institute of the Finnish Economy.
    8. Rüth, Sebastian K. & Simon, Camilla, 2020. "How Do Income and the Debt Position of Households Propagate Public into Private Spending?," Working Papers 0676, University of Heidelberg, Department of Economics.
    9. Agata Szymańska, 2018. "Wpływ polityki fiskalnej na PKB w krajach Unii Europejskiej spoza strefy euro," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 49-74.
    10. Eric Sims & Jonathan Wolff, 2018. "The Output And Welfare Effects Of Government Spending Shocks Over The Business Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(3), pages 1403-1435, August.
    11. Valerie A. Ramey, 2019. "Ten Years after the Financial Crisis: What Have We Learned from the Renaissance in Fiscal Research?," Journal of Economic Perspectives, American Economic Association, vol. 33(2), pages 89-114, Spring.
    12. Chibi Abderrahim & Chekouri Sidi Mohamed & Benbouziane Mohamed, 2019. "The Impact of Fiscal Policy on Economic Activity over the Business Cycle: An Empirical Investigation in the Case of Algeria," Review of Middle East Economics and Finance, De Gruyter, vol. 15(3), pages 1-23, December.
    13. Konstantinou, Panagiotis Th. & Partheniou, Andromachi, 2021. "The Effects of Government Spending Over the Business Cycle: A Disaggregated Analysis for OECD and Non-OECD Countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 809-822.
    14. Rüth, Sebastian K. & Simon, Camilla, 2022. "How do income and the debt position of households propagate fiscal stimulus into consumption?," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    15. Stylianos Asimakopoulos & Marco Lorusso & Luca Pieroni, 2021. "Can public spending boost private consumption?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(3), pages 1275-1313, November.
    16. Javier Andrés & José Emilio Boscá & Javier Ferri, 2011. "Household Leverage and Fiscal Multipliers," Working Papers 1103, International Economics Institute, University of Valencia.
    17. Atems, Bebonchu, 2019. "The effects of government spending shocks: Evidence from U.S. states," Regional Science and Urban Economics, Elsevier, vol. 74(C), pages 65-80.
    18. Kim, Hyeongwoo & Zhang, Shuwei, 2018. "Understanding Why Fiscal Stimulus Can Fail through the Lens of the Survey of Professional Forecasters," MPRA Paper 89326, University Library of Munich, Germany.
    19. Shafik Hebous, 2011. "The Effects Of Discretionary Fiscal Policy On Macroeconomic Aggregates: A Reappraisal," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 674-707, September.
    20. Kuckuck, Jan & Westermann, Frank, 2014. "On the size of fiscal multipliers: A counterfactual analysis," Economics Letters, Elsevier, vol. 123(1), pages 26-32.

    More about this item

    Keywords

    Fiscal Policy; Econometrics; Investment; Economic Growth; Interest Rates; Inflation;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F0 - International Economics - - General
    • H1 - Public Economics - - Structure and Scope of Government
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:100737. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.