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What Do We Know About the Effects of Fiscal Policy Shocks? A Comparative Analysis

Author

Listed:
  • Dario Caldara

    (Economics IIES)

  • Christophe Kamps

    (European Central Bank)

Abstract

The empirical literature studying the effects of fiscal policy shocks using VAR models differs among two important dimensions: the identification scheme and the VAR specification. Not surprisingly the results obtained are often diverse. The aim of this paper is to test whether differences in the results can be explained by different VAR specifications and/or alternative identification strategies. To this end, we estimate a common reduced-form VAR model to which we apply the different identification approaches proposed in the literature. We find that, after controlling for specification issues, the recursive approach and the Blanchard-Perotti approach yield very similar results, while the fiscal dummy variable approach yields significantly different results.

Suggested Citation

  • Dario Caldara & Christophe Kamps, 2006. "What Do We Know About the Effects of Fiscal Policy Shocks? A Comparative Analysis," Computing in Economics and Finance 2006 257, Society for Computational Economics.
    • Handle: RePEc:sce:scecfa:257
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    Cited by:

    1. Milan Deskar-Škrbić & Hrvoje Šimović & Tomislav Ćorić, 2013. "Effects of Fiscal Policy in a Small Open Economy: Evidence of Croatia," EFZG Working Papers Series 1302, Faculty of Economics and Business, University of Zagreb.
    2. Milan Deskar-Škrbić & Hrvoje Šimović, 2017. "The effectiveness of fiscal spending in Croatia, Slovenia and Serbia: the role of trade openness and public debt level," Post-Communist Economies, Taylor & Francis Journals, vol. 29(3), pages 336-358, July.
    3. Hess Chung & Eric Leeper, 2007. "What Has Financed Government Debt?," CAEPR Working Papers 2007-015, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    4. Furlanetto, Francesco, 2011. "Fiscal stimulus and the role of wage rigidity," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 512-527, April.
    5. Lauren Cohen & Joshua D. Coval & Christopher Malloy, 2010. "Do Powerful Politicians Cause Corporate Downsizing?," NBER Working Papers 15839, National Bureau of Economic Research, Inc.
    6. Barbara Rossi & Sarah Zubairy, 2011. "What Is the Importance of Monetary and Fiscal Shocks in Explaining U.S. Macroeconomic Fluctuations?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(6), pages 1247-1270, September.
    7. Hrvoje Simovic & Milan Deskar-Skrbic, 2013. "Dynamic effects of fiscal policy and fiscal multipliers in Croatia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 31(1), pages 55-78.
    8. Sebastian Gechert, 2015. "What fiscal policy is most effective? A meta-regression analysis," Oxford Economic Papers, Oxford University Press, vol. 67(3), pages 553-580.
    9. Ricco, Giovanni & Ellahie, Atif, 2012. "Government Spending Reloaded: Fundamentalness and Heterogeneity in Fiscal SVARs," MPRA Paper 42105, University Library of Munich, Germany.
    10. Ana GRDOVIĆ GNIP, 2015. "Empirical Assessment Of Stabilization Effects Of Fiscal Policy In Croatia," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 47-69, March.
    11. Staehr, Karsten, 2008. "Fiscal policies and business cycles in an enlarged euro area," Economic Systems, Elsevier, vol. 32(1), pages 46-69, March.
    12. Rosaria Rita Canale & Pasquale Foresti & Ugo Marani & Oreste Napolitano, 2008. "On keynesian effects of (apparent) non-keynesian fiscal policies," Politica economica, Società editrice il Mulino, issue 1, pages 5-46.
    13. Milan Deskar Škrbić & Hrvoje Šimović, 2015. "The size and determinants of fiscal multipliers in Western Balkans: comparing Croatia, Slovenia and Serbia," EFZG Working Papers Series 1510, Faculty of Economics and Business, University of Zagreb.
    14. Haryo Kuncoro, 2014. "The cyclicality of government expenditure in developing country: the case of Indonesia," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 6(1), pages 23-37, April.
    15. Lauren Cohen & Joshua Coval & Christopher Malloy, 2011. "Do Powerful Politicians Cause Corporate Downsizing?," Journal of Political Economy, University of Chicago Press, vol. 119(6), pages 1015-1060.
    16. Orcan Cortuk, 2013. "A disaggregated approach to the determination of government spending multipliers," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 16(1), pages 31-45, March.
    17. Furlanetto Francesco & Seneca Martin, 2009. "Fiscal Shocks and Real Rigidities," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-33, February.
    18. Romano, Simone, 2018. "Fiscal foresight: Do expectations have cross-border effects?," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 71-82.
    19. Sebastian Gechert & Ansgar Rannenberg, 2014. "Are Fiscal Multipliers Regime-Dependent? A Meta Regression Analysis," IMK Working Paper 139-2014, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    20. Bode, Oliver & Gerke, Rafael & Schellhorn, Hannes, 2006. "Die Wirkung fiskalischer Schocks auf das Bruttoinlandsprodukt," Working Papers 01/2006, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    21. Monika Pécsyová, 2014. "Odhad vplyvu fiškálnej konsolidácie na rast HDP v SR [Estimated Impact of Fiscal Consolidation on GDP Growth in the Slovak Republic]," Politická ekonomie, Prague University of Economics and Business, vol. 2014(2), pages 174-193.
    22. Rafael Ravnik & Ivan Zilic, 2011. "The use of SVAR analysis in determining the effects of ?scal shocks in Croatia," Financial Theory and Practice, Institute of Public Finance, vol. 35(1), pages 25-58.

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    More about this item

    Keywords

    Fiscal Policy Shocks; VAR analysis;

    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)
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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