The Impact of Fiscal Policy on Economic Activity Over the Business Cycle - Evidence from a Threshold VAR Analysis

Baum, Andrew; Koester, Gerrit

doi:10.2139/ssrn.2785397

Cited by 67 publications

(27 citation statements)

References 42 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…While Owyang et al . (2013) and Ramey and Zubairy (2018) find limited asymmetries in government spending multipliers with respect to slack in the economy, Baum and Koester (2011) find more volatility in spending multipliers using a threshold VAR to estimate a range between 0.36 in good times and 1.04 during recessions. Auerbach and Gorodnichenko (2013,2014, ), and Fazzari et al .…”

Section: Empirical Evidence and Discussionmentioning

confidence: 99%

“…Spending and taxation multipliers are 95% and 65% lower, respectively, during booms (periods of high loan‐to‐value ratios) compared to recessions. Baum and Koester (2011) apply a threshold structural VAR to data from Germany between 1976 and 2009, and find reductions in government spending multipliers of 43.8% from recessions to expansions, with the results for changes in tax revenue multipliers not statistically significant. Baum et al .…”

Section: Empirical Evidence and Discussionmentioning

confidence: 99%

“…A key finding from the ensuing empirical work has been that fiscal multipliers are statedependent-larger in recessions when there is spare capacity in the economy, and smaller in upturns. For example, Auerbach andGorodnichenko (2012, 2013), Baum andKoester (2011), andFazzari et al (2015) find that government spending multipliers range from near zero at the peak of the business cycle to 1.6 or greater during recessions. Similarly, Tagkalakis (2008) shows that fiscal policy has been more effective in expanding private investment during recessions compared to expansions in OECD countries.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Why are Fiscal Multipliers Asymmetric? The Role of Credit Constraints

2020

View full text Add to dashboard Cite

Recent empirical evidence strongly points to the state dependence of fiscal multipliers that are larger in recessions than in expansions. Yet standard business cycle models face great difficulty in producing such asymmetric fiscal policy effects. By incorporating endogenously binding collateral constraints into a medium scale dynamic stochastic general equilibrium model, we find that fiscal effectiveness can vary substantially across the business cycle. The key to our framework is the state-dependent nature of collateral constraints-binding in bad times while slack in good times, amplifying the effectiveness of fiscal policy and hence generating fiscal multipliers that are larger during recessions.

show abstract

Section: Empirical Evidence and Discussionmentioning

confidence: 99%

Section: Empirical Evidence and Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Why are Fiscal Multipliers Asymmetric? The Role of Credit Constraints

2020

View full text Add to dashboard Cite

show abstract

“…In a non-linear framework, Baum and Koester (2011), using a threshold VAR model, analyse the effects of fiscal policy on economic activity over the business cycle for Germany. They derive a fiscal multiplier around 0.7 for both revenues and spending in a linear model.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Then, contemporaneous effect of fiscal variables to output (c 1 and c 2 ) need to be estimated. Again in line with Blanchard et al (2002) and Baum et al (2011), we use the cyclically adjusted reduced form fiscal policy shocks and we estimate the third equation of the equation system 2. Finally, under the assumption that revenue decisions come first, a 2 is set to zero.…”

Section: Blanchard-perotti Identificationmentioning

confidence: 99%

Fiscal Shocks and Asymmetric Effects: A Comparative Analysis

et al. 2013

View full text Add to dashboard Cite

We empirically test the effects of unanticipated fiscal policy shocks on the growth rate and the cyclical component of real private output and reveal different types of asymmetries in fiscal policy implementation. The data used are quarterly U.S. observations over the period 1967:1 to 2011:4. In doing so, we use both a vector autoregressive and the novel support vector machines systems in order to extract the fiscal policy shocks series. The latter has never been used before in a similar macroeconomic setting. Within our research framework, in order to test the robustness of our results to alternative aggregate money supply definitions we use two alternative moentary aggregates. These are the commonly reported by central banks and policy makers simple sum monetary aggregates at the MZM level of aggregation and the alternative CFS Divisia MZM aggregate. From each of these four systems we extracted four types of shocks: a negative and a positive government spending shock and a negative and a positive government revenue shock. These eight different types of unanticipated fiscal policy shocks are next used to empirically examine their effects on the growth rate and the cyclical component of real private GNP in two sets of regressions: one that assumes only contemporaneous effects of the shocks on output and one that is augmented with four lags of each fiscal shock.

show abstract

Fiscal Policies and Credit Regimes: A TVAR Approach

2014

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract Terms of use: Documents in EconStor mayIn the present work we investigate how the state of credit markets non-linearly affects the impact of fiscal policies. We estimate a Threshold Vector Autoregression (TVAR) model on U.S quarterly data for the period 1984-2010. We employ the spread between BAA-rated corporate bond yield and 10-year treasury constant maturity rate as a proxy for credit conditions. We find that the response of output to fiscal policy shocks are stronger and more persistent when the economy is in the "tight" credit regime. The fiscal multipliers are abundantly and persistently higher than one when firms face increasing financing costs, whereas they are feebler and often lower than one in the "normal" credit regime. On the normative side, our results suggest policy makers to carefully plan fiscal policy measures according to the state of credit markets.JEL Codes: J32, E32, E44, E62

show abstract

The Impact of Fiscal Policy on Economic Activity Over the Business Cycle - Evidence from a Threshold VAR Analysis

Cited by 67 publications

References 42 publications

Why are Fiscal Multipliers Asymmetric? The Role of Credit Constraints

Why are Fiscal Multipliers Asymmetric? The Role of Credit Constraints

Fiscal Shocks and Asymmetric Effects: A Comparative Analysis

Fiscal Policies and Credit Regimes: A TVAR Approach

Contact Info

Product

Resources

About