|
Barcelona GSE Working Papers Series
|
 |
|
Barcelona GSE Working Paper No. 647 | | Title: | Shocking Policy Coefficients | | Authors: | Luca Gambetti | | Date: | 31-05-2012 | | Keywords: | Policy regime change, Tims-varying coefficients VAR, Parameter identification, Fiscal policy rules, Countercyclical fiscal policy | | JEL Codes: | C32, E62 | | Abstract: | | This paper proposes an empirical framework to study the effects of a policy regime change defined as an unpredictable and permanent change in the policy parameters. In particular I show how to make conditional forecast and perform impulse response functions and counterfactual analysis. As an application, the effects of changes in fiscal policy rules in the US are investigated. I find that discretionary fiscal policy has become more countercyclical over the last decades. In absence of such a change, surplus would have been higher, debt lower and output gap more volatile but only until mid 80s. An increase in the degree of counter-cyclicality of fiscal policy has a positive effect on output gap in periods where the level of debt-to-GDP ratio is low and a zero or negative effect when the ratio is high. This explains why a more countercylical stance of the systematic fiscal policy taking place in 2008:II is predicted to be rather ineffective for recovering from the crisis. | | Download this working paper in PDF format (418.91 Kb) |  List of all recent working papers |
| |
|
|
