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Multipliers of expected vs. unexpected fiscal shocks: The case of Korea

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  • Hur, Joonyoung
  • Rhee, Wooheon

Abstract

We compare the multipliers of expected and unexpected fiscal shocks. In doing so, we consider that the future path of fiscal policy is anticipated to some degree, and incorporate this characteristic into a news approach. We build a standard small open economy New-Keynesian DSGE model with a fully specified fiscal policy structure, and examine the Korean economy as an example of a small open emerging economy. We find that the present-value multiplier of the government consumption news shock in Korea is smaller than that of a corresponding surprise shock of the same magnitude, apart from the initial couple of years in the case of the output multiplier, and is consistently smaller in the cases of the consumption and investment multipliers. The present-value output multiplier of the government consumption news shock starts from about 0.72 and declines continuously to reach 0.16 after 40 years.

Suggested Citation

  • Hur, Joonyoung & Rhee, Wooheon, 2020. "Multipliers of expected vs. unexpected fiscal shocks: The case of Korea," Economic Modelling, Elsevier, vol. 85(C), pages 244-254.
    • Handle: RePEc:eee:ecmode:v:85:y:2020:i:c:p:244-254
    DOI: 10.1016/j.econmod.2019.05.021
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    More about this item

    Keywords

    News shock; Present-value fiscal multiplier; Small open emerging economy; DSGE;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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