What Accounts for the Changes in U.S. Fiscal Policy Transmission?

49 Pages Posted: 3 Feb 2006

See all articles by Florin Ovidiu Bilbiie

Florin Ovidiu Bilbiie

University of Oxford

André Meier

International Monetary Fund

Gernot J. Müller

University of Tuebingen - Department of Economics

Date Written: January 2006

Abstract

Using vector autoregressions on U.S. time series for 1957-1979 and 1983-2004, we find government spending shocks to have stronger effects on output, consumption, and wages in the earlier sample. We try to account for this observation within a DSGE model featuring price rigidities and limited asset market participation. Specifically, we estimate the structural parameters of the model for both samples by matching impulse responses. Model-based counterfactual experiments suggest that increased asset market participation accounts for some of the changes in fiscal transmission. However, the key quantitative factor appears to be the more active monetary policy of the Volcker-Greenspan period.

Keywords: Government Spending, Asset Market Participation, Fiscal Policy, Monetary Policy, DSGE, Vector Autoregression, Minimum Distance Estimation

JEL Classification: E21, E62, E63

Suggested Citation

Bilbiie, Florin Ovidiu and Meier, André and Müller, Gernot J., What Accounts for the Changes in U.S. Fiscal Policy Transmission? (January 2006). ECB Working Paper No. 582, Available at SSRN: https://ssrn.com/abstract=876946

Florin Ovidiu Bilbiie (Contact Author)

University of Oxford ( email )

Oxford
United Kingdom

André Meier

International Monetary Fund ( email )

700 19th Street NW
Washington, DC 20009
United States

Gernot J. Müller

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

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