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Macroeconomic Studies on Fiscal Policy and Real Exchange Rates

Hjelm, Göran LU (2002)
Abstract (Swedish)
Popular Abstract in Swedish

Denna avhandling innehåller fyra empiriska makroekonomiska uppsatser och dessa kan kortfattat summeras som följer. I den första uppsatsen används såväl deskriptiv statistik som regressionsanalys och jag undersöker om förändringar i real växelkurs och/eller penningutbud före och under fiskala kontraktioner påverkar det makroekonomiska utfallet. Den deskriptiva analysen består av tre steg. Först definieras fiskal kontraktion. Sedan så definieras kontraktioner som ’succéer’, ’partiella succéer’ samt ’misslyckanden’. Till sist konfronteras de tre kategorierna av kontraktioner med data beträffande förändringar i real växelkurs och penningutbud före och under kontraktionerna och jag utvärderar om det... (More)
Popular Abstract in Swedish

Denna avhandling innehåller fyra empiriska makroekonomiska uppsatser och dessa kan kortfattat summeras som följer. I den första uppsatsen används såväl deskriptiv statistik som regressionsanalys och jag undersöker om förändringar i real växelkurs och/eller penningutbud före och under fiskala kontraktioner påverkar det makroekonomiska utfallet. Den deskriptiva analysen består av tre steg. Först definieras fiskal kontraktion. Sedan så definieras kontraktioner som ’succéer’, ’partiella succéer’ samt ’misslyckanden’. Till sist konfronteras de tre kategorierna av kontraktioner med data beträffande förändringar i real växelkurs och penningutbud före och under kontraktionerna och jag utvärderar om det finns några statistiskt säkerställda mönster. Jag finner att föregående reala deprecieringar är signifikant större för kontraktioner som ger positiva makroekonomiska effekter. I den ekonometriska analysen så estimeras en strukturell konsumtionsfunktion. Till denna läggs dummy variabler till för kontraktionsperioder och jag finner att tillväxt i privat konsumtion är högre under kontraktionsperioder som föregåtts av reala deprecieringar jämfört med perioder som föregåtts av reala apprecieringar. I den andra uppsatsen undersöks om tillväxt i privat konsumtion är högre (lägre) under perioder av fiskala kontraktioner (expansioner). Jag använder en strukturell konsumtionsfunktion som kontrollerar för de direkta effekterna av t.ex. finanspolitik och fokuserar på förväntningseffekter av kraftfulla fiskala åtgärder. I motsats till ett antal fallstudier visar resultaten från vår panel studie att tillväxten i privat konsumtion är lägre under fiskala kontraktionsperioder. Jag studerar också känsligheten i resultaten genom att analysera effekterna av kontraktionernas komposition, storlek samt föregående nivå och tillväxt i skuldkvot. Ingen av dessa faktorer har dock någon betydelse för resultaten. I den tredje uppsatsen så estimeras en s.k. common trends modell med amerikanska federala skatter och utgifter. Jag finner att de två variablerna är kointegrerade och därför drivs common trends modellen av en permanent och en transitorisk chock. Den permanenta chocken tolkas att häröra från strukturella politiska beslut medan den transitoriska chocken tolkas häröra från konjunkturcykelfluktuationer. De permanenta och transitoriska chockerna sammanförs sedan med demokratiska och republikanska presidentperioder. Jag finner att republikaner är ansvariga för majoriteten av besluten att minska den offentliga sektorns storlek – speciellt under första halvan av presidentperioden – samt att demokrater har suttit vid makten då majoriteten av de positiva konjunkturcykelchockerna inträffat. In den fjärde uppsatsen undersöks den relativa betydelsen av permanenta och transitoriska chocker för att förklara förändringar i den reala växelkursen mellan Japan och Sverige. Teoretiska modeller förutsäger att transitoriska chocker är viktiga både på kort och medellång sikt p g a ofullständig konkurrens och prisstelheter. Tidigare empiriska studier som studerat den relativa betydelsen av transitoriska chocker har kommit fram till mycket olika resultat. Jag finner att den reala växelkursen mellan Japan och Sverige är icke-stationär. Vidare använder jag en teoretisk modell och estimerar en common trends modell med real växelkurs och totalfaktorproduktivitet. Dessa variabler är kointegrerade så modellen drivs av två permanenta och en transitorisk chock. Genom att använda faktumet att Sverige är ett litet land så identifieras de två permanenta chockerna att vara produktivitetschocker för Japan och Sverige. Resultaten visar att endast en liten del (7.2% som högst) av variationerna i real växelkurs förklaras av transitoriska chocker. Alltså, produktivitetschocker dominerar bilden. (Less)
Abstract
This thesis contains four empirical macroeconomic studies and the papers may briefly be summarized as follows. In the first paper, we use both descriptive statistics and regression analysis to investigate whether movements in real exchange rates and money supply before and during fiscal contractions matter for the macroeconomic outcome. First we define fiscal contraction. Second, we label the contractions as successes, partial successes or failures depending on the macroeconomic outcome. Third, we confront the three categories with data on real exchange rate and money supply movements and find that preceding real depreciations are significantly larger for contractions having a favorable macroeconomic outcome. In the econometric analysis,... (More)
This thesis contains four empirical macroeconomic studies and the papers may briefly be summarized as follows. In the first paper, we use both descriptive statistics and regression analysis to investigate whether movements in real exchange rates and money supply before and during fiscal contractions matter for the macroeconomic outcome. First we define fiscal contraction. Second, we label the contractions as successes, partial successes or failures depending on the macroeconomic outcome. Third, we confront the three categories with data on real exchange rate and money supply movements and find that preceding real depreciations are significantly larger for contractions having a favorable macroeconomic outcome. In the econometric analysis, we estimate a structural consumption function and find that private consumption growth is higher during contractions preceded by real depreciations compared to contractions preceded by real appreciations. In the second paper, we investigate whether private consumption growth is higher (lower) during periods of fiscal contractions (expansions). We make use of a structural consumption function that controls for the direct effects of e.g. fiscal policy, we focus on the expectational effects of fiscal actions. Contrary to some case studies, the results of our panel data imply that private consumption growth is lower during periods of contractions. We also check the sensitivity of the mentioned result by examining the effects of the composition, the size, and the preceding level and growth of the debt ratio. None of these factors alter the main findings, however. In the third paper we estimate a so-called common trends model of federal taxes and spending in the U.S. We find that the two variables are cointegrated and the common trends model is hence driven by one permanent and one temporary shock. The permanent shock is interpreted as being induced by structural policy decisions, while the temporary shock is of business cycle nature. We assign the permanent economic policy shocks and the business cycle shocks to Democratic and Republican terms. We find that Republicans are responsible for the major attempts to permanently decrease the size of the public sector - especially during the first half of the term - and that Democrats have been in office during most of the positive business cycle shocks. In the fourth paper, we examine the relative importance of permanent and transitory shocks for explaining movements in the real exchange rate of Japan and Sweden. Recent theoretical models suggest that transitory shocks are important both in the short and medium run due to imperfect competition and price stickiness. We estimate a common trends model including the real exchange rate and TFPs of Japan and Sweden. These variables are found to be cointegrated and the model is hence driven by two permanent shocks and one temporary shock. The results imply that, contrary to recent theoretical models, only a minor share (7.2% at most) of the forecast error variance decomposition is explained by the transitory shock. Hence, permanent (productivity) shocks clearly dominate the picture. (Less)
Please use this url to cite or link to this publication:
author
opponent
  • Professor Hoffman, Dennis, Arizona State University
organization
publishing date
type
Thesis
publication status
published
subject
keywords
econometrics, economic theory, Total factor productivity, Economics, Real exchange rates, Structural VAR models, Partisan models, Fiscal policy, Fiscal contractions, economic systems, economic policy, Nationalekonomi, ekonometri, ekonomisk teori, ekonomiska system, ekonomisk politik
pages
118 pages
publisher
Department of Economics, Lund Universtiy
defense location
Room EC3:211, Tycho Brahes väg 1, S-220 07 Lund, Sweden
defense date
2002-06-03 14:15
ISSN
0460-0029
language
English
LU publication?
yes
id
b90df265-8baf-4a2b-aa86-63d48ad03fc7 (old id 464728)
date added to LUP
2007-09-27 11:32:58
date last changed
2016-09-19 08:44:53
@phdthesis{b90df265-8baf-4a2b-aa86-63d48ad03fc7,
  abstract     = {This thesis contains four empirical macroeconomic studies and the papers may briefly be summarized as follows. In the first paper, we use both descriptive statistics and regression analysis to investigate whether movements in real exchange rates and money supply before and during fiscal contractions matter for the macroeconomic outcome. First we define fiscal contraction. Second, we label the contractions as successes, partial successes or failures depending on the macroeconomic outcome. Third, we confront the three categories with data on real exchange rate and money supply movements and find that preceding real depreciations are significantly larger for contractions having a favorable macroeconomic outcome. In the econometric analysis, we estimate a structural consumption function and find that private consumption growth is higher during contractions preceded by real depreciations compared to contractions preceded by real appreciations. In the second paper, we investigate whether private consumption growth is higher (lower) during periods of fiscal contractions (expansions). We make use of a structural consumption function that controls for the direct effects of e.g. fiscal policy, we focus on the expectational effects of fiscal actions. Contrary to some case studies, the results of our panel data imply that private consumption growth is lower during periods of contractions. We also check the sensitivity of the mentioned result by examining the effects of the composition, the size, and the preceding level and growth of the debt ratio. None of these factors alter the main findings, however. In the third paper we estimate a so-called common trends model of federal taxes and spending in the U.S. We find that the two variables are cointegrated and the common trends model is hence driven by one permanent and one temporary shock. The permanent shock is interpreted as being induced by structural policy decisions, while the temporary shock is of business cycle nature. We assign the permanent economic policy shocks and the business cycle shocks to Democratic and Republican terms. We find that Republicans are responsible for the major attempts to permanently decrease the size of the public sector - especially during the first half of the term - and that Democrats have been in office during most of the positive business cycle shocks. In the fourth paper, we examine the relative importance of permanent and transitory shocks for explaining movements in the real exchange rate of Japan and Sweden. Recent theoretical models suggest that transitory shocks are important both in the short and medium run due to imperfect competition and price stickiness. We estimate a common trends model including the real exchange rate and TFPs of Japan and Sweden. These variables are found to be cointegrated and the model is hence driven by two permanent shocks and one temporary shock. The results imply that, contrary to recent theoretical models, only a minor share (7.2% at most) of the forecast error variance decomposition is explained by the transitory shock. Hence, permanent (productivity) shocks clearly dominate the picture.},
  author       = {Hjelm, Göran},
  issn         = {0460-0029},
  keyword      = {econometrics,economic theory,Total factor productivity,Economics,Real exchange rates,Structural VAR models,Partisan models,Fiscal policy,Fiscal contractions,economic systems,economic policy,Nationalekonomi,ekonometri,ekonomisk teori,ekonomiska system,ekonomisk politik},
  language     = {eng},
  pages        = {118},
  publisher    = {Department of Economics, Lund Universtiy},
  school       = {Lund University},
  title        = {Macroeconomic Studies on Fiscal Policy and Real Exchange Rates},
  year         = {2002},
}