Measuring the Impact of Fiscal Policy in the Face of Anticipation: A Structural VAR Approach

21 Pages Posted: 10 May 2010

See all articles by Karel Mertens

Karel Mertens

Federal Reserve Banks - Federal Reserve Bank of Dallas

Morten O. Ravn

European University Institute - Economics Department (ECO); London Business School - Department of Economics; University of Southampton; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

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Date Written: 2010-02-20

Abstract

Empirical estimates of the impact of government spending shocks disagree on central issues such as the size of output multipliers and the responses of consumption and the real wage. One explanation for the disagreement is that fiscal shocks are often anticipated. Due to misspecification of the information set, anticipation effects may invalidate SVAR estimates of impulse responses. We use economic theory to derive a fiscal SVAR estimator that is applicable when fiscal shocks are anticipated. We study its properties and apply it to US data. We fail to find evidence that anticipation effects overturn the existing findings from the fiscal SVAR literature.

Suggested Citation

Mertens, Karel and Ravn, Morten O., Measuring the Impact of Fiscal Policy in the Face of Anticipation: A Structural VAR Approach (2010-02-20). The Economic Journal, Vol. 120, Issue 544, pp. 393-413, May 2010, Available at SSRN: https://ssrn.com/abstract=1601557 or http://dx.doi.org/10.1111/j.1468-0297.2010.02361.x

Karel Mertens (Contact Author)

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Morten O. Ravn

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