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A New Measure of Fiscal Shocks Based on Budget Forecasts and its Implications

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  • Manuel Coutinho Pereira

Abstract

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.

Suggested Citation

  • Manuel Coutinho Pereira, 2009. "A New Measure of Fiscal Shocks Based on Budget Forecasts and its Implications," Working Papers w200921, Banco de Portugal, Economics and Research Department.
  • Handle: RePEc:ptu:wpaper:w200921
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    Cited by:

    1. Manuel Coutinho Pereira, 2012. "Revisiting the effectiveness of monetary and fiscal policy in the US, measured on the basis of structural VARs," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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