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The Macroeconomic Effects of Fiscal Policy

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  • António Afonso

    (Economics - European Central Bank, Economics - ISEG/UTL-Tehnical University of Lisbon)

Abstract

We investigate the macroeconomic effects of fiscal policy using a Bayesian Structural Vector Autoregression approach. We identify fiscal policy shocks via a partial identification scheme, but also: (i) include the feedback from government debt (ii); look at the impact on the composition of output; (iii) assess the effects on asset markets (iv) use quarterly data; and (v) analyze empirical evidence from the U.S., the U.K., Germany, and Italy. The results show that government spending shocks, in general, have a small effect on GDP; lead to important "crowding-out" effects; have a varied impact on housing prices and generate a quick fall in stock prices. Government revenue shocks generate a mixed effect on housing prices and a small and positive effect on stock prices. The empirical evidence also suggests that it is important to explicitly consider the government debt dynamics in the model.

Suggested Citation

  • António Afonso, 2011. "The Macroeconomic Effects of Fiscal Policy," Post-Print hal-00719484, HAL.
    • Handle: RePEc:hal:journl:hal-00719484
    DOI: 10.1080/00036846.2011.591732
    Note: View the original document on HAL open archive server: https://hal.science/hal-00719484
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    20. Hüseyin Şen & Ayşe Kaya, 2014. "Crowding-Out or Crowding-In? Analyzing the Effects of Government Spending on Private Investment in Turkey," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(6), pages 617-630, December.
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