Government Spending Reloaded: Fundamentalness and Heterogeneity in Fiscal SVARs

MPRA Paper from University Library of Munich, Germany

Abstract: Using a large information approach and full Bayesian VAR techniques, we study the economic effects of fiscal policy shocks in the U.S. over the last five decades. We find that omitted variables can explain the well known sample instability of the estimates for the fiscal multiplier. We also find evidence of fiscal foresight and anticipation of the government spending shocks recovered from small Structural VARs (SVARs). Despite incorporating forecasts of government spending, Expectational VARs (EVARs) also show signs of fiscal foresight and anticipation. Conversely, the fiscal shocks recovered from a large information BVAR do not exhibit the same problem. Moreover, large information SVARs and EVARs deliver identical dynamic responses to fiscal shocks. Finally, we report multipliers and impulse response functions for aggregate government spending as well as for components of government spending, and find remarkably heterogeneous responses.

Keywords: structural VARs; large Bayesian VARs; fiscal shocks; government spending; government spending news; fiscal foresight; survey of professional forecasters (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
Date: 2012-04-01
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (4)

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https://mpra.ub.uni-muenchen.de/51893/1/MPRA_paper_51893.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/56361/1/MPRA_paper_56361.pdf revised version (application/pdf)

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