Estimating the dynamics of fiscal financing in emerging economies

Krastina Dzhambova
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Krastina Dzhambova: Department of Economics, College of Business and Economics, University of Wisconsin- Whitewater, Whitewater, USA

Economic Analysis Letters, 2024, vol. 3, issue 1, 16-29

Abstract: I present a theoretical model and an empirical approach for jointly estimating the effectiveness of fiscal policy and the stochastic process of sovereign interest rate shocks. The theoretical model has features relevant to small open and emerging economies. Interest rate shocks affect the ability of firms to finance payroll expenses. This theoretical feature creates a propagation mechanism for interest rate shocks and affects government spending multipliers. This paper proposes a strategy for jointly estimating government spending multipliers and the interest rate shock process parameters.

Keywords: Government spending multipliers; Small open economy; DSGE models; Government financing; Impulse response matching estimation (search for similar items in EconPapers)
Date: 2024
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