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A new measure of fiscal shocks based on budget forecasts and its implications

  • Pereira, Manuel C

This paper develops a new measure of US fiscal policy shocks that intends to avoid the anticipation problem affecting conventional measures, being also arguably free from endogeneity. The shocks are intended to capture changes to the component of anticipated fiscal policy that is exogenous to economic developments. Key economic variables such as output and interest rates respond quickly and significantly to a realization of the estimated shock and, in the first part of the sample, 1969-1988, in a way consistent with the Keynesian prior. In contrast, over the period 1989-2008 the effects are at odds with that prior, with fiscal loosening producing contractionary impacts.

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File URL: http://mpra.ub.uni-muenchen.de/17475/1/MPRA_paper_17475.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17475.

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Date of creation: Sep 2009
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Handle: RePEc:pra:mprapa:17475
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  3. Giavazzi, Francesco & Jappelli, Tullio & Pagano, Marco, 2000. "Searching for Non-Linear Effects of Fiscal Policy: Evidence from Industrial and Developing Countries," CEPR Discussion Papers 2374, C.E.P.R. Discussion Papers.
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  7. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
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  16. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, vol. 100(3), pages 763-801, June.
  17. Alan J. Auerbach, 2009. "Implementing the New Fiscal Policy Activism," NBER Working Papers 14725, National Bureau of Economic Research, Inc.
  18. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of two Small Euopean Countries," Working Papers 89, Dipartimento Scienze Economiche, Universita' di Bologna.
  19. J. D. Foster & James C. Miller, 2000. "The Tyranny of Budget Forecasts," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 205-215, Summer.
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