A new measure of fiscal shocks based on budget forecasts and its implications

Manuel Pereira

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a new measure of US fiscal policy shocks that intends to avoid the anticipation problem affecting conventional measures, being also arguably free from endogeneity. The shocks are intended to capture changes to the component of anticipated fiscal policy that is exogenous to economic developments. Key economic variables such as output and interest rates respond quickly and significantly to a realization of the estimated shock and, in the first part of the sample, 1969-1988, in a way consistent with the Keynesian prior. In contrast, over the period 1989-2008 the effects are at odds with that prior, with fiscal loosening producing contractionary impacts.

Keywords: fiscal policy; budget forecasts; macroeconomic stabilization; interest rate determination (search for similar items in EconPapers)
JEL-codes: E32 E43 E62 (search for similar items in EconPapers)
Date: 2009-09
New Economics Papers: this item is included in nep-mac
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https://mpra.ub.uni-muenchen.de/17475/1/MPRA_paper_17475.pdf original version (application/pdf)

Related works:
Working Paper: A New Measure of Fiscal Shocks Based on Budget Forecasts and its Implications (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:17475

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