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Government Expenditures and Business Cycles—Policy Reaction and Surprise Shocks

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  • Christian Glocker

    (Christian Glocker is at the Austrian Institute of Economic Research, Arsenal, Objekt Vienna, Austria, email: Christian.Glocker@wifo.ac.at)

Abstract

This article analyses the effects of government expenditures on German business cycle fluctuations by means of an estimated DSGE model based on low frequency oscillations. The results highlight that fiscal policy has a strong impact on the amplitude of fluctuations while hardly any on the duration of business cycles. To the extent that fiscal policy shocks are an important source for triggering economy-wide fluctuations, fiscal policy also strongly reacts to shocks originating elsewhere. Thus standard specifications of government expenditures in terms of simple AR(1) processes ignore the fact that there can indeed be a strong dependence of governmental variables on economic fluctuations. JEL Classification: C13, C32, E3, E62

Suggested Citation

  • Christian Glocker, 2013. "Government Expenditures and Business Cycles—Policy Reaction and Surprise Shocks," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 7(3), pages 215-254, August.
    • Handle: RePEc:sae:mareco:v:7:y:2013:i:3:p:215-254
    DOI: 10.1177/0973801013491533
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    Cited by:

    1. Friesenbichler, Klaus S. & Glocker, Christian, 2019. "Tradability and productivity growth differentials across EU Member States," Structural Change and Economic Dynamics, Elsevier, vol. 50(C), pages 1-13.

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    More about this item

    Keywords

    Fiscal Policy; Business Cycles; DSGE Models; Estimation;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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