Essays on Macroeconomic Aspects of Fiscal Policy
Abstract
Recently, various fiscal policies are adopted to overcome severe recessions caused by the Financial Crisis and the Great Recession in many advanced countries. In this dissertation, I focus on the effects of those various fiscal policies on the aggregate economy.
In the first study, I examine the state-dependent effects of government debt on government spending multipliers. First, I estimate the spending multipliers conditional on the level of government debt using US historical data and the two-state direct projection method. The empirical results show that the estimated short-run multipliers in a high debt state are larger than those in a low debt state, which contraries to the conventional prediction. Second, I find evidence to support that the government spending significantly differ by the level of government debt. To understand large short-run multipliers in a high debt state, I construct a New Keynesian model to explain the large short-run multipliers in a high debt state. The model suggests that the interaction between the state-dependent government spending rule and monetary policy could be a potential channel to understand the large short-run multipliers in a high debt state.
In the second study, I investigate the time-varying relation between government budget balances and external balances to test the twin deficit hypothesis. Through a time-varying structural VAR model and the post World War II data for the US economy, I find new time-varying patterns. To provide some insights about the empirical facts, I construct a small open economy New Keynesian model incorporated rule-of-thumb consumers suggested by Gali et al. [2007b]. A shift in exchange rate regimes and slow-adjusting taxes seem to be be useful to understand the empirical results.
Citation
Kim, Wongi (2015). Essays on Macroeconomic Aspects of Fiscal Policy. Doctoral dissertation, Texas A&M University. Available electronically from https : / /hdl .handle .net /1969 .1 /187007.