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The cyclicality of fiscal policy: New evidence from unobserved components approach

journal contribution
posted on 13.11.2017 by Omar H.M.N. Bashar, Prasad Sankar Bhattacharya, Mark Wohar
© 2017 Elsevier Inc. This paper employs the multivariate version of the unobserved components model to reinvestigate the cyclicality of fiscal policy in eleven OECD countries. The novelty of the multivariate approach lies in its superior ability to disentangle the correlations in cycles from the correlations in slopes of the relevant variables while allowing for those correlations in the model. The results suggest that fiscal policy is mildly counter-cyclical in seven of the eleven countries analyzed which resonates with the standard Keynesian models. However, the slope (growth) of government consumption is found to be positively correlated with real GDP in these economies. There is no evidence of procyclical fiscal policies in any of these eleven industrial countries. The results remain robust when we use subsamples and an alternative fiscal policy variable.

History

School

  • Business and Economics

Department

  • Business

Published in

Journal of Macroeconomics

Volume

53

Pages

222 - 234

Citation

BASHAR, O.H.M.N., BHATTACHARYA, P.S. and WOHAR, M.E., 2017. The cyclicality of fiscal policy: New evidence from unobserved components approach. Journal of Macroeconomics, 53, pp. 222-234.

Publisher

© Elsevier

Version

VoR (Version of Record)

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Acceptance date

21/07/2017

Publication date

2017

Notes

This paper is in closed access.

ISSN

0164-0704

Language

en

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