The macroeconomic effects of fiscal policy in portugal : a bayesian SVAR analysis

• Author(s): Afonso, António ; Sousa, Ricardo M.
• Date: 2011
• Persistent ID: http://hdl.handle.net/1822/11966
• Origin: RepositóriUM - Universidade do Minho
• Subject(s): B-SVAR; Fully simultaneous system; Fiscal policy; Debt dynamics; Portugal
• Document Type: Article
• Language: English

Description

With a new quarterly dataset we estimate a Bayesian Structural Autoregression model and a Fully Simultaneous System approach to analyze the macroeconomic effects of fiscal policy. Results show that positive government spending shocks, in general, have a negative effect on real GDP; lead to “crowding-out” effects of private consumption and investment; have a persistent and positive effect on the price level and a mixed impact on the average financing cost of government debt. Explicitly considering the government debt dynamics in the model is also important. A VAR counter-factual exercise confirms that unexpected positive spending shocks create relevant “crowding-out” effects.