Characterization of the Dynamic Effects of Fiscal Shocks in a Small Open Economy
Nooman Rebei ()
Staff Working Papers from Bank of Canada
The author studies the macroeconomic consequences of discretionary changes in the fiscal policy instruments for Canada. He adopts a semi-structural vector autoregression framework. Restrictions are based on institutional interactions between some policy and non-policy instruments that mimic a government's decision process. The author characterizes the actual economy's response to fiscal shocks, and proposes a theoretical model for a small open economy with nominal and real rigidities to test for the endogenous transmission mechanisms following shocks to government spending. He pursues a limited-information econometric strategy by comparing the theoretical impluse-response functions with the empirical ones, capturing the effects of a disturbance in government spending. Generally, the results of the model are very close to the observed reactions, especially for consumption, investment, exports, imports, and inflation; however, the model fails to predict the real exchange rate reaction.
Keywords: Economic models; Exchange rates; Fiscal policy (search for similar items in EconPapers)
JEL-codes: E32 E62 (search for similar items in EconPapers)
Pages: 43 pages
New Economics Papers: this item is included in nep-fin, nep-ifn and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:04-41
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