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Uncertainty and non-linear macroeconomic effects of fiscal policy in the US: A SEIVAR-based analysis

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  • Belke, Ansgar
  • Goemans, Pascal

Abstract

We investigate whether the macroeconomic effects of government spending shocks vary with the level of uncertainty. Using postwar US data and a Self-Exciting Interacted VAR (SEIVAR) model, we find that fiscal spending has positive output effects in tranquil times but is contractionary during uncertain times. The endogenous reaction of macroeconomic uncertainty plays an important role in explaining the non-linear impact of government spending. In contrast to other types of government spending, research and development expenditures reduce uncertainty and have an expansionary effect on output during uncertain times.

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  • Belke, Ansgar & Goemans, Pascal, 2019. "Uncertainty and non-linear macroeconomic effects of fiscal policy in the US: A SEIVAR-based analysis," Ruhr Economic Papers 826, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:826
    DOI: 10.4419/86788959
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    More about this item

    Keywords

    Government spending shocks; uncertainty; non-linear structural vector autoregressions; interacted VAR; generalized impulse response functions; endogenous uncertainty;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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

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