Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153425
Authors: 
Afonso, António
Sousa, Ricardo M.
Year of Publication: 
2009
Series/Report no.: 
ECB Working Paper 991
Abstract: 
We investigate the macroeconomic effects of fiscal policy using a Bayesian Structural Vector Autoregression approach. We build on a recursive identification scheme, but we: (i) include the feedback from government debt (ii); look at the impact on the composition of output; (iii) assess the effects on asset markets (via housing and stock prices); (iv) add the exchange rate; (v) assess potential interactions between fiscal and monetary policy; (vi) use quarterly data, particularly, fiscal data; and (vii) analyze empirical evidence from the U.S., the U.K., Germany, and Italy. The results show that government spending shocks, in general, have a small effect on GDP; lead to important “crowding-out” effects; have a varied impact on housing prices and generate a quick fall in stock prices; and lead to a depreciation of the real effective exchange rate. Government revenue shocks generate a small and positive effect on both housing prices and stock prices that later mean reverts; and lead to an appreciation of the real effective exchange rate. The empirical evidence also shows that it is important to explicitly consider the government debt dynamics in the model.
Subjects: 
Bayesian Structural VAR
debt dynamics
Fiscal Policy
JEL: 
C11
C32
E62
H62
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.