Multipliers of expected vs. unexpected fiscal shocks: The case of Korea |
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| Affiliation: | 1. Division of Economics, Hankuk University of Foreign Studies, 107, Imun-ro, Dongdaemun-gu, Seoul, 02450, Republic of Korea;2. Department of Economics, Kyung Hee University, 26 Kyungheedae-ro, Dongdaemun-gu, Seoul, 02447, Republic of Korea;1. Division of Economics, Hankuk University of Foreign Studies, 107, Imun-ro, Dongdaemun-gu, Seoul, 02450, Republic of Korea;2. Department of Economics, Kyung Hee University, 26 Kyungheedae-ro, Dongdaemun-gu, Seoul, 02447, Republic of Korea;1. University College Dublin, Ireland;2. City University of Hong Kong and Wilfrid Laurier University, Ireland;3. Dublin City University, Ireland;1. Allegheny College, Department of Economics, Quigley Hall, Box 20, Meadville, PA, 16335, USA;2. Virginia Tech, Department of Economics, Pamplin Hall, Mail Code 0316, Blacksburg, VA, 24061, USA;1. INSEEC School of Business & Economics, 27, Avenue Claude Vellefaux, 75010, Paris, France;2. INSEEC School of Business & Economics, H19, Quai de Bacalan, 33070, Bordeaux, France;1. Financial Stability Department, Bank of Korea, Republic of Korea;2. Economic Research Institute, Bank of Korea, 55 Namdaemun-ro, Jung-gu, Seoul, Republic of Korea;1. Division of Economics, Hankuk University of Foreign Studies, 107, Imun-ro, Dongdaemun-gu, Seoul, Republic of Korea;2. Fiscal Policy Analysis Division, The National Assembly Budget Office, 1, Uisadang-ro, Yeongdeungpo-gu, Seoul, Republic of Korea |
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| Abstract: | We compare the multipliers of expected and unexpected fiscal shocks. In doing so, we consider that the future path of fiscal policy is anticipated to some degree, and incorporate this characteristic into a news approach. We build a standard small open economy New-Keynesian DSGE model with a fully specified fiscal policy structure, and examine the Korean economy as an example of a small open emerging economy. We find that the present-value multiplier of the government consumption news shock in Korea is smaller than that of a corresponding surprise shock of the same magnitude, apart from the initial couple of years in the case of the output multiplier, and is consistently smaller in the cases of the consumption and investment multipliers. The present-value output multiplier of the government consumption news shock starts from about 0.72 and declines continuously to reach 0.16 after 40 years. |
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| Keywords: | News shock Present-value fiscal multiplier Small open emerging economy DSGE E62 F41 H30 |
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