The Macroeconomic Effects of Fiscal Policy, Applied Economics
JOURNAL
YEAR
Sep 21, 2012
TYPE
Articles in journals
AUTHORS
Afonso, A., Sousa, R.
VOL Nº
44
PAGES
15
ABSTRACT
We investigate the macroeconomic effects of fiscal policy using a Bayesian Structural Vector Autoregression approach. We identify fiscal policy shocks via a partial identification scheme, but also: (i) include the feedback from government debt (ii); look at the impact on the composition of output; (iii) assess the effects on asset markets (iv) use quarterly data; and (v) 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. Government revenue shocks generate a mixed effect on housing prices and a small and positive effect on stock prices. The empirical evidence also suggests that it is important to explicitly consider the government debt dynamics in the model.
JEL CLASS
KEYWORDS
Fiscal policy,Bayesian Structural VAR,Debt dynamics,