Uncertainty and nonlinear macroeconomic effects of fiscal policy in the US: a SEIVAR-based analysis
ISSN: 0144-3585
Article publication date: 18 May 2021
Issue publication date: 6 May 2022
Abstract
Purpose
The purpose of this paper is to investigate whether the macroeconomic effects of government spending shocks vary with the degree of macroeconomic uncertainty.
Design/methodology/approach
The authors use quarterly US data from 1960 to 2017 and employ the Self-Exciting Interacted VAR (SEIVAR) to compute nonlinear generalized impulse response functions (GIRFs) to an orthogonalized government spending shock during tranquil and in uncertain times. The parsimonious design of the SEIVAR enables us to focus on extreme deciles of the uncertainty distribution and to control for the financing side of the government budget, monetary policy, financial frictions and consumer confidence.
Findings
Fiscal spending has positive output effects in tranquil times, but is contractionary during times of heightened macroeconomic uncertainty. The results indicate an important role of the endogenous response of macroeconomic uncertainty. Investigating different government spending purposes, only increases in research and development expenditures reduce uncertainty and boost output during uncertain times.
Originality/value
The authors contribute to the literature in using a method which allows to control for a large set of confounding factors and accounts for the uncertainty response.
Keywords
Acknowledgements
Ansgar Belke deceased after submission. This paper is dedicated to him.
The authors thank Mohsen Bahmani-Oskooee (the editor), an anonymous referee, Volker Clausen, Marien Ferdinandusse, Giovanni Pellegrino, Reinhard Neck, as well as participants at the 5th HenU/INFER Workshop on Applied Macroeconomics, the 23rd Annual Conference on Macroeconomic Analysis and International Finance, the 87th International Atlantic Economic Conference, the 68th Annual Meeting of the French Economic Association, the VfS Annual Conference 2019 and the Ruhr Graduate School of Economics Jamboree 2018 for helpful comments and suggestions. Pascal Goemans gratefully acknowledges financial support by the Ruhr Graduate School in Economics.
Citation
Belke, A. and Goemans, P. (2022), "Uncertainty and nonlinear macroeconomic effects of fiscal policy in the US: a SEIVAR-based analysis", Journal of Economic Studies, Vol. 49 No. 4, pp. 623-646. https://doi.org/10.1108/JES-07-2020-0334
Publisher
:Emerald Publishing Limited
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