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Asymmetric Fiscal Policy Shocks

  • Periklis Gogas

    ()

    (Department of International Economic Relations and Development, Democritus University of Thrace, Greece)

  • Ioannis Pragidis

    (Department of International Economic Relations and Development, Democritus University of Thrace, Greece)

We empirically test the effects of unanticipated fiscal policy shocks on the level and growth rate of real output and reveal different types of asymmetries in fiscal policy implementation. The data used are quarterly U.S. observations over the period 1967:1 to 2011:4. In doing so, we use six alternative vector autoregressive systems in order to construct the fiscal policy shocks. These systems differ in the method of identification, the use or not of exogenous variables and in the type of exogenous monetary variables used. From each one of these six systems we extracted four types of shocks: a negative and a positive government spending shock and a negative and a positive government revenue shock. These six sets of unanticipated fiscal shocks were used next to empirically examine their effects on the level and growth rate of real GDP in two sets of regressions: one that assumes only contemporaneous effects of the shocks on output and one that is augmented with four lags of each fiscal shock.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 07_13.

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Date of creation: Jan 2013
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Handle: RePEc:rim:rimwps:07_13
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