Essays on Macroeconomic Aspects of Fiscal Policy
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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.
Kim, Wongi (2015). Essays on Macroeconomic Aspects of Fiscal Policy. Doctoral dissertation, Texas A&M University. Available electronically from