The effects of fiscal policy in an estimated DSGE model: The case of the German stimulus packages during the great recession

Andrej Drygalla, Oliver Holtemöller and Konstantin Kiesel

No 34/2017, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: In this paper, we analyse the effects of the stimulus packages adopted by the German government during the Great Recession. We employ a standard mediumscale dynamic stochastic general equilibrium (DSGE) model extended by nonoptimising households and a detailed fiscal sector. In particular, the dynamics of spending and revenue variables are modeled as feedback rules with respect to the cyclical component of output. Based on the estimated rules, fiscal shocks are identified. According to the results, fiscal policy, in particular public consumption, investment, transfers and changes in labour tax rates including social security contributions prevented a sharper and prolonged decline of German output at the beginning of the Great Recession, suggesting a timely response of fiscal policy. The overall effects, however, are small when compared to other domestic and international shocks that contributed to the economic downturn. Our overall findings are not sensitive to the allowance of fiscal foresight.

Keywords: fiscal policy shocks; DSGE model; Bayesian inference; stimulus packages (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-dge, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/175751/1/1015296874.pdf (application/pdf)

Related works:
Journal Article: THE EFFECTS OF FISCAL POLICY IN AN ESTIMATED DSGE MODEL—THE CASE OF THE GERMAN STIMULUS PACKAGES DURING THE GREAT RECESSION (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:342017

Access Statistics for this paper

More papers in IWH Discussion Papers from Halle Institute for Economic Research (IWH) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().