Fiscal multipliers in a structural VEC model with mixed normal errors |
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| Institution: | 1. School of Science, Tianjin University of Commerce, Tianjin 300134, China;2. Department of Mathematical Sciences, Stevens Institute of Technology, Hoboken NJ 07030, USA;1. Department of Statistical Sciences, University of Toronto, Toronto, Ontario M5S 3G3, Canada;2. Quantitative Engineering and Development, TD Securities, Toronto, Ontario M5K 1A2, Canada;3. Department of Statistics and Actuarial Science, University of Iowa, Iowa City, IA 52242, USA;1. Department of Physics, Panskura Banamali College, Panskura-721152, India;2. Department of Physics, Vidyasagar University, Midnapore-721102, India;3. Jaypee Institute of Information Technology, A-10, Sector-62, Noida, UP-201307, India;4. Department of Physics, Vidyasagar Teachers’ Training College, Midnapore-721101, India;1. Programa de Geriatría, Servicio de Medicina Interna, Hospital Universitari de Bellvitge, IDIBELL, L’Hospitalet de LLobregat, Barcelona, España;2. Servicio de Medicina Interna, Hospital Clínico Universitario Lozano Blesa, Facultad de Medicina, Instituto de Investigación Sanitaria de Aragón (IIS-Aragón), Zaragoza, España;1. Indian Statistical Institute, Statistics and Mathematics Unit, 8th Mile, Mysore Road, Bangalore 560059, India;2. Department of Mathematics and Statistics, Fylde College, Lancaster University, Lancaster LA1 4YF, UK |
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| Abstract: | This paper estimates the effects of fiscal policy shocks on GDP in the United States with a vector error correction (VEC) model in which shocks are identified by exploiting the non-normal distribution of the model residuals. Unlike previous research, the model used here takes into account cointegation between the variables, and applies a data driven method to identify fiscal policy shocks. The approach also allows statistical testing of previous identification strategies, which may help discriminate between them and hence also explain differences between various fiscal multiplier estimates. Our results show that a deficit financed government spending shock has a weak negative effect on output, whereas a tax increase to finance government spending has a positive impact on GDP. |
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