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What Accounts for the Changes in U.S. Fiscal Policy Transmission?
Author(s) -
BILBIIE FLORIN O.,
MEIER ANDRÉ,
MÜLLER GERNOT J.
Publication year - 2008
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2008.00166.x
Subject(s) - economics , counterfactual thinking , dynamic stochastic general equilibrium , fiscal policy , monetary policy , monetary economics , asset (computer security) , consumption (sociology) , government spending , government expenditure , impulse response , vector autoregression , econometrics , macroeconomics , public finance , market economy , mathematical analysis , social science , philosophy , computer security , mathematics , epistemology , sociology , computer science , welfare
Using vector autoregressions on U.S. time series for 1957–79 and 1983–2004, we find government spending shocks to have stronger effects on output, consumption, and wages in the earlier period. 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 periods by matching impulse responses. Model‐based counterfactual experiments suggest that most of the changes in fiscal policy transmission are accounted for by increased asset market participation and the more active monetary policy of the Volcker–Greenspan period.