Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/247203 
Year of Publication: 
2021
Series/Report no.: 
Queen’s Economics Department Working Paper No. 1461
Publisher: 
Queen's University, Department of Economics, Kingston (Ontario)
Abstract: 
An SVAR in US federal spending, federal revenue, and GDP is a standard setting for the study of the impact of fiscal shocks. An appealing feature of identifying a fiscal shock with an external instrument is that one can find the effects of that shock without fully identifying the SVAR. But we show that fully or almost fully instrumenting the SVAR allows one to overidentify the model by restricting the shock covariances to be zero. In this application the overidentifying restrictions are not rejected. Compared to the unrestricted case the restricted SVAR yields (a) greater precision in estimating impulse response functions and multipliers and (b) smaller estimated effects of government spending shocks on output growth.
Subjects: 
structural vector autoregression
fiscal policy
external instruments
JEL: 
E62
C36
Document Type: 
Working Paper

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