Ruhr Economic Papers

Ruhr Economic Papers #826

Uncertainty and Non-Linear Macroeconomic Effects of Fiscal Policy in the US: A SEIVAR-Based Analysis

by Ansgar Belke and Pascal Goemans

RGS, UDE, 10/2019, 49 S./p., 8 Euro, ISBN 978-3-86788-959-9 DOI: 10.4419/86788959

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Abstract

We investigate whether the macroeconomic effects of government spending shocks vary with the
level of uncertainty. Using postwar US data and a Self-Exciting Interacted VAR (SEIVAR) model, we
find that fiscal spending has positive output effects in tranquil times but is contractionary during
uncertain times. The endogenous reaction of macroeconomic uncertainty plays an important role in
explaining the non-linear impact of government spending. In contrast to other types of government
spending, research and development expenditures reduce uncertainty and have an expansionary
effect on output during uncertain times.

JEL-Classification: E62, E32, C32

Keywords: Government spending shocks; uncertainty; non-linear structural vector autoregressions; interacted VAR; generalized impulse response functions; endogenous uncertainty

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